Treasury Official Addresses Rising “Strain”, Illiquidity In The Market

Unlike the Trump Administration, where even the smallest dip in stocks was met with a furious barrage from the now-banned presidential twitter account urging Americans to BTFD, the Biden administration has been silent on the recent tumble in risk assets, which is understandable since it is far more preoccupied with containing soaring inflation. However that changed today, when Nellie Liang, Under Secretary for Domestic Finance, delivered remarks to the Institute of International Bankers’ Annual Washington Conference, in which among broad remarks about the state of the US financial system including stablecoins and climate change, and she touched upon the growing strain in the financial system, to wit:

  • markets showing some signs of strain
  • investors are meeting elevated margin calls without delay
  • investors are showing little concern about solvency or liquidity stresses at domestic financial institutions

Here is the excerpt in question:

Since the Russian aggression commenced and sanctions put in place, the ruble has fallen and the Russian stock market has closed.  Commodity prices have surged and equity prices have fallen, and by more in economies more closely tied to Russia. 

Markets have continued to function well as the financial system works through implementing the broad scale of new sanctions, albeit with some signs of strain such as wider bid-ask spreads and slightly higher term unsecured funding costs. 

Investors are meeting elevated margin calls without delay. Moreover, investors show little concern about solvency or liquidity stresses at domestic financial institutions. 

With the situation changing rapidly, the Financial Stability Oversight Council (FSOC) convened last week to discuss financial developments and actions to mitigate risks.  We are talking to our global regulatory colleagues, who are also closely monitoring the situation.  We will continue to be alert to fallout from the recent events. 

While the Treasury’s assessment was cheerful, we bring readers’ attention to a chart we have published several times and which shows that liquidity of the emini S&P futures, arguably the most actively equity futures contract, has collapsed to levels last seen during the March 2020 crash and has yet to recover.

Read further at ZeroHedge

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