[apodolny]

Here's my understanding of the plan based on the Fed's description[1]:

The Federal Reserve has created a new program that provides a backstop to banks based on the par value of their assets, rather than the market value. This is huge because the issue here is that the assets on a bank’s books are baskets of loans (typically mortgages or loans to the US government) that are very safe but have lost market value because interest rates have risen. However, at par (what they'll pay over their lifetimes), they cover all the bank’s deposits.

Mechanically, the way this would work would be that if a bunch of depositors all withdraw at once, rather than the bank having to sell that basket of loans at a big loss, they’ll borrow from the Federal Reserve instead. That way, they won’t take a loss and won’t end up insolvent. Depositors get their money and everyone would be happy. Since everyone now knows this is possible, in all likelihood this won’t actually get used that much because it’s safe to leave your money in the bank.

[1] https://www.federalreserve.gov/newsevents/pressreleases/mone...

[jcranmer]

> The Federal Reserve has created a new program that provides a backstop to banks based on the par value of their assets, rather than the market value. This is huge because the issue here is that the assets on a bank’s books are baskets of loans (typically mortgages or loans to the US government) that are very safe but have lost market value because interest rates have risen. However, at par (what they'll pay over their lifetimes), they cover all the bank’s deposits.

One of the big "lessons" of the 2008 financial crisis was the need to mark assets to market value, because otherwise, the banks were reticent to admit that their worthless assets were, in fact, worthless. So I find a certain amount of amusement in the government saying 15 years later in effect that mark-to-market is a bad idea and needs to be avoided to prevent financial problems.

[belltaco]

>One of the big "lessons" of the 2008 financial crisis was the need to mark assets to market value, because otherwise, the banks were reticent to admit that their worthless assets were, in fact, worthless.

This is not about 'worthless' assets. This is about, say, 10 year US treasury bonds, the safest investments in the world, losing current market value because of interest rates raised by the Federal Reserve.

The intent is two fold, not only saving banks, but also making sure that long term bond's interest rates don't go higher because of lack of demand. That will have repercussions like municipal bonds not getting buyers except maybe at high rates, etc.

>So I find a certain amount of amusement in the government saying 15 years later in effect that mark-to-market is a bad idea and needs to be avoided to prevent financial problems

They didn't say that, they're creating a narrow exception in their books. Mark-to-market will continue to be used everywhere else.