Highlights From the Latest Fed Meetingby Tim Manni
In conjunction with the conclusion of each Federal Open Market Committee (FOMC) meeting, the Fed provides an immediate statement outlining any changes to their monetary policy. It takes three weeks for the Fed to release the more-detailed minutes of their meeting.
Here are a few interesting and important highlights from the minutes of the FOMC March 17-18 meeting (emphasis added):
Liquid deposits, while decelerating, continued to expand briskly. Savings deposits increased while demand deposits decreased. Retail money funds fell in February, reflecting sizable outflows from Treasury-only funds, which generally provided low yields. Small time deposits also contracted, as the institutions that had been bidding aggressively for these retail funds stopped doing so.
HSH: The fact that banks no longer need to aggressively compete for “small time” deposits (say with high interest rates or other incentives) suggests that these institutions may be more liquid than otherwise expected. It suggests that they have sufficient capital to cover present volumes of lending, or are getting funds from other sources — such as TARP.
The announcement from Wells Fargo this morning — which sent stocks rising — that they expect a first-quarter net income of nearly $3 billion implies that not only has their acquisition of Wachovia been fruitful, but also that the loans they are making are of better quality, with higher yields than those seen in the last few years.
After 12 consecutive months of contraction, residential mortgage loans on banks’ books increased in February, likely a result of the pickup in refinancing activity. In contrast, the rise in home equity loans slowed noticeably in January and February.
HSH: Better quality, higher yielding loans are at the heart of increasing profits, such as those seen at Wells Fargo.
[FOMC members] did not interpret the uptick in housing starts in February as the beginning of a new trend, but some noted that there was only limited scope for housing activity to fall further.
HSH: Despite the housing market not experiencing the official turnaround it so desperately needs, “some noted” that the recognition of a bottom is not far off. It’s worth noting that activity in housing has strengthened since those February reports.
Participants shared comments received from financial industry contacts on their experiences with and concerns about recent government programs to stabilize the financial system. These contacts feared that uncertainties about future actions the government might take and future regulations it might impose were making it more difficult to plan and were discouraging participation in government efforts to stabilize the financial system.
HSH: Judging by the moderate success of the first round of the TALF, and the lower than expected participation in the second round, it may reflect that many participants have about ending up like the original nine banks that accepted TARP funds, or even like GM’s Rick Wagoner. Participants fear being “raked over the coals” in front of Congress, having the rules change mid-stream, and of course any unseen “strings” that seemed to be attached with many government programs. Has Washington poisoned future “rescue” programs because of the way they have treated the original TARP participants?