Source: Wall Street News

Following the debt ceiling agreement, the upcoming Treasury rebuilds its cash account (TGA), increasing it from $50 billion to 600 billion dollars or more. Bank deposit reserves will be further absorbed, and regional banks will once again be pushed to the edge of liquidity.

Previously, Morgan Stanley believed, “At a time when the banking system fluctuates, further loss of reserves may increase the risk.” Now Goldman Sachs strategist Cecilia Pretus also said that due to the rebuilding of TGA, liquidity may be drastically tightened in June and July. Under extreme circumstances (assuming no capital flows out of the RRP),The $550 billion TGA means that it will absorb 15% of bank reserves in two months, which will be a very significant contraction in liquidity.

A more reasonable scenario would be that half of the TGA would flow out of RRP. This is equivalent to reducing bank reserves by 250 billion US dollars within 2 months, which is about 7.7% of current overall reserves. There is great uncertainty about how much RRP can contribute, but it's also critical.

Meanwhile, TGA's margin plus TLTRO repayments and QT will also lead to fluctuations and poor performance in risk assets in the second half of the year. [ZeroHedge Goldman Sachs]

Editor/jayden