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Central Bank Balance Sheet

Balance Sheet-A Central Banks assets and liabilities

              Liabilities-Cash/money(debt to the Government)

              Assets- Buying mortgage backed securities, debt, corporate bonds

Mortgage backed securities- Multitude of loans inside of one security. The MBS does have an equity curve and can gain in value as well as lose value. When a failure happens inside of a MBS, that means a high chance of a default.

The Federal Reserve ended up buying all of the MBS from the government and institutions. This is how the Feds balance sheet has become so large. Eventually the Fed will have to taper/reduce the balance sheet. When bonds mature, you get your money back, the balance sheet will shrink. During the financial collapse of 2008, the Fed had to massively increase the monetary base. This was to counter the collapsing economy. The taper tantrum happened in 2014 when Ben Bernanke said the Fed would start tapering the balance sheet, and investors started selling bonds. The Swiss National Bank has been intervening in the markets and this is reflected in their balance sheet. Take an in depth look at how the SNB operates

Posted 
December 3, 2019
 in 
Fundamentals 101

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