According to Wall Street on Parade, New York Fed Member Banks are Only on the Hook for $42.6 Billion of its $3.9 Trillion in Liabilities in the Event of any Defaults

Basically, the key takeaway is this: if any debtor happens to default on the MBS’s (and soon to be Corporate Bonds) that are listed on the New York Fed’s balance sheet,  JPMorgan Chase, Citigroup, Goldman Sachs and Morgan Stanley will only be liable for 1.8%.

As to Wall Street on Parade’s claim that the government will be on the hook for the remainder of these losses: that seems to be open to debate..

“The Federal Reserve Act requires that each member bank subscribe to the capital stock of the Reserve Bank in an amount equal to 6 percent of the capital and surplus of the member bank. These shares are nonvoting, with a par value of $100, and may not be transferred or hypothecated. As a member bank’s capital and surplus changes, its holdings of Reserve Bank stock must be adjusted. Currently, only one-half of the subscription is paid in, and the remainder is subject to call. A member bank is liable for Reserve Bank liabilities up to twice the par value of stock subscribed by it.”

Read the full article here

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