Federal Reserve Is BackStopping Shorts As The Lender Of Last Resort
As the US central bank, the Federal Reserve (“Fed”) has been acting as the Lender Of Last Resort to the financial system by lending through their “discount window”. [Wikipedia, Federal Reserve Discount Window Lending]
One of the core responsibilities of central banks is to act as “lender of last resort” to the financial system. In the U.S., the Federal Reserve has been operating as a lender of last resort through its “discount window” (DW) for more than a century. Historically, however, the DW has been plagued by stigma—banks’ reluctance to use the DW, even for benign reasons, out of concerns that it could be interpreted as a sign of financial weakness. [NY Fed: Can Discount Window Stigma Be Cured?]
It doesn’t take Sherlock Holmes to figure out that if someone is borrowing from the Discount Window of the Lender of Last Resort, they’re probably having financial trouble as nobody else is willing to lend to them. Which is why nobody wants to be seen as a broke ass scrub [YouTube] doing so…
![[1]](https://preview.redd.it/risnrs58wjfe1.png?width=1778&format=png&auto=webp&s=5fe569c8b672198124b35ab253f08eba3b2753d6){kind=link}
Just as nobody wants to be seen going into a pawn shop, financial institutions don’t want to be seen borrowing emergency liquidity [SuperStonk: Let's Talk Liquidity] from the Fed’s discount window. To avoid this problem of borrowers short of cash looking broke at the discount window, the Fed created a new option for emergency borrowing: Standing Repo Facility (SRF).
Additional Reasons for a Standing Repo Facility
Lending to Banks in Good Standing
There are several other reasons why introducing a standing repo facility makes sense. First, as discussed here, it is a way for the Fed to lend cash to banks that are in good standing and have high-quality Treasury securities as collateral but may find themselves short of cash. Importantly, this facility would not suffer from stigma problems that make the discount window an ineffective tool in these circumstances.
[Federal Reserve: Why the Fed Should Create a Standing Repo Facility]
So in July 2021, just 6 months after the GameStop Sneeze 🤧, the Fed created a new borrowing option for financial institutions short on cash to borrow money; and apparently anyone using this new borrowing option will not look like they’re desperate and in need of cash. A “safe” side door to the same pawn shop. The author of Central Banking 101, Joseph Wang, says “Another way to think about the SRF is as a type of Discount Window”.
![[2]](https://preview.redd.it/by9upyrbwjfe1.png?width=1448&format=png&auto=webp&s=f4978865bf466576ccbf78ba433c33c446389532){kind=link}
Repos are different from the Reverse Repos (RRP) that this community has been tracking. (HUGE Thank You to the RRP apes!) and the Fed has a page about both Repo and Reverse Repo Agreements which links to the daily Fed reports on how much Repo Operations borrowing is accepted at their Standing Repo Facility. (Similarly, the Reverse Repo Operations page tracked by this community is linked from there.)
The Repo Operations page has a convenient chart which shows us a quick overview of Repo usage where I selected the dates from before Sneeze (Nov 1, 2020) to Jan 17, 2025 (when I started drafting this post). We can immediately see that repo wasn’t used much early on meaning there was not much emergency borrowing from the Fed, even around the Sneeze. However, repo usage increases over time with borrowing from the lender of last resort happening more often and more regularly after March 2024. (Coincidentally right when the BTFP Not-A-Bailout Can Kicking Bailout [SuperStonk] expires? I think not!) Looks like one or more financial institutions started running out of cash around March 2024 and started borrowing emergency cash from the Lender of Last Resort (going through the side door instead of the front "discount window" door after the BTFP window closed).
Shortly after troubled financial institution(s) started relying upon the Lender of Last Resort, Roaring Kitty returned in May 2024.
Idiosyncratic Systemic Risk
WHEN things happen can be very informative. (The SEC redacting Failure To Deliver “FTD” data is a prime example. [SEC Strategically Failing To Deliver FTD Data, SEC Responds to FOIA Request saying they’re withholding data and that there’s no publicly available data missing.] THANK YOU FOIA APES!)
You may have noticed the $2.6 BILLION 😳 emergency borrowing spike on Sept 30, 2024, a very notable day. On that day, Roaring Kitty “RK” (aka DeepFuckingValue and Keith Gill) proved that stock prices are fake and the stock market broken by rolling his 🐕 position into GME [SEC Filing for the sell; DD for the roll]. 🤔
We can look closer at the time frame when RK returned to see if any of these bigger emergency borrowing spikes correlate with key events of the GME saga and FTD redactions.
- May 9 is a pretty damn good start as that’s the day Roaring Kitty 👍 a tweet for the movie Run LOLa Run. Two days later (e.g., on T2 settlement) GME ran, peaking at $64 intraday with a high close of $48.75 on May 14.
- May 16 is interesting as that’s right after GME was slammed down after spiking up to a May 14th high of $64.83. Was $100M in emergency funding borrowed to push GME back down? 🤔 GME did a 45M ATM Offering the very next day (i.e., May 17) which suggests the possibility GameStop was asked to help smooth things out and banked $933M in the process.
- June 5 is interesting because two days prior BRKA glitched dropping from ~$618,000 to $185 which was followed the next day by a DTCC Bulletin on Unscheduled Closing in the event a former President needs mourning; and these events occurred in between Roaring Kitty’s YOLO posts (6/2, 6/3, and 6/6). On June 7, GameStop did a 75M ATM Offering ending on June 11 which suggests the possibility GameStop was again asked to help smooth things out and banked $2.1 BILLION in the process.
- June 13 Deep Fucking Value posts another YOLO Update showing he’s acquired 4M more shares and, on the same day, $100M in emergency funding was borrowed. (GME closed at $29.12 on June 13 where 4M shares at that closing price is about $116.5M; a bit more than the amount of emergency borrowing that day.)
- July 9 (7/9) corresponds to the flipped “Flip Mode 9-7” Roaring Kitty tweet (9-7 → 7-9). While I have no idea why someone needed to borrow some emergency funding this day, it seems Roaring Kitty knew.
- Aug 8 spike is actually the culmination of 3 days of emergency borrowing after the Aug 5 Japan Flash Crash where Susquehanna [SuperStonk] and Blue Ocean ATS [CNBC] both had outages. With emergency borrowing levels of $1M on 8/6, $5M on 8/7, and $101M on 8/8. (And ICYMI, the Aug 5 Japan Flash Crash occurred as a result of someone failing their margin call on 🐕 [SuperStonk] which was mentioned in Roaring Kitty’s “Season Of Hope” tweet [Season Of Hope at 1:32 (SuperStonk)].)
- Sept 10 is exactly 1 FINRA Margin Call cycle (T15 per Rule 4210(f)(6) + C14 Regulatory Extension Code 068/069) after the 8/5 Japan Flash Crash. $100M in emergency borrowing on this day and XRT FTDs [REDACTED] when GameStop’s earnings reports profitability and GameStop starts another 20M ATM Offering which suggests the possibility GameStop was yet again asked to help smooth things out (that’s three times now) and banked $400M in the process.
- Sept 24 is the day after GameStop’s 20M ATM Offering finishes and 🐕 ATM Offering & Repurchase completes. Even with that help, shorts left a huge 9.4M FTD 🧳 on 🐕 on Sept 23 compelling the SEC to [REDACT] FTDs for GME, 🐕, and XRT on Sept 24 while also borrowing $59M from the Lender of Last Resort. (The XRT ETF is well known to this community as a tool to short GME through the ETF creation process sanctioned by the SEC [Peruvian Bull on the SEC no-action relief using ETF creation to satisfy delivery; SEC No Action Relief Letter].)
- Oct 3 is the day after Bank of America’s outage when $2M was borrowed on 10/2 and another $102M borrowed on 10/3. (Coincidentally, Oct 3 is cake day for the user with an avocado in their anus.) ICYMI, Bank of America Merrill Lynch (BAML) serves as clearing and prime broker for over 96% of Citadel Securities net derivatives assets [SuperStonk].
- Nov 6 is the day after the OCC’s Margin Call Reminder about volatility on or after Nov 5 (PDF) which suggests emergency borrowing to meet margin calls.
- Dec 10 is the effective date when OCC nixed the value of some collateral; apparently in preparation for a Short Squeeze [SuperStonk]. ICYMI, the same OCC proposed reducing margin requirements to avoid a cascade of margin calls a year before; thankfully shot down by apes sending over 2500+ comments.
- Dec 23 is a fitting end to this list as XRT is added to the RegSHO Threshold List on this day and has continued to be on it since.
And, just last Friday $82M was borrowed from the Lender of Last Resort right after RECAPS [PDF] and the BOJ raising rates that affects the Yen Carry Trade [Japanese Carry Trade from 2005 until Now (SuperStonk) and GameStop and the Carry Trade (SuperStonk)]. Thus, it is extremely difficult to ignore the ongoing coincidences between GME shorts and emergency liquidity borrowing from the Lender of Last Resort.
While a single correlation does not imply causation, this timeline of repeated correlations over 9 months and counting shows financial institutions are borrowing emergency liquidity from the Federal Reserve at times when GameStop and 🐕 shorts are short on cash. Thus, idiosyncratic systemic risk and an inescapable conclusion: the Federal Reserve is backstopping financial institutions short on GameStop and 🐕 as the Lender of Last Resort by providing emergency cash to those financial institutions when no one else will.
[1] https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr1137.pdf