I am thinking about the WSJ article on BTFP today and I can't think of a way why JPM or BAC won't use BTFP to get their HTM securities valued at par. It appears to be a zero risk with potential reward thing to do, unless the security is a part of some security specific requirement under capital reserves (which I don't think there is).
They could use that to extend margin to hedgies who are ready to except risk since there are no requirements for them.
Additionally, JPM and other big banks could also use banks like FRC to funnel their HTM securities to their balance sheets and take interest payments on collateralized debt.
This is absolutely insane! There is literally no downside for JPM or other banks! If Fed increases the interest rates, they buy more bonds with the money they got with HTM securities. If Fed decreases interest rates, hedgies benefit with the risk assets appreciating and inturn paying JPM a spread over the current interest rate JPM gets from Fed!
Could anyone think of why this is not a zero risk trade for the big banks? Would appreciate any contributions!
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