Part 8/11:
- Detractors view it as a disguised bailout, especially since the intervention involves the Fed holding or providing liquidity against long-term bonds that may only be worth less than face value until they mature.
The Potential for Future Risks
While current actions may have averted an immediate crisis, underlying vulnerabilities remain:
Small Bank Exposure: Customers are advised to consider transferring funds from smaller banks to more secure institutions, as smaller banks tend to be more susceptible to runs during turbulent times.
Asset Quality and Liquidity: Banks holding significant long-term securities are vulnerable if market valuations deteriorate or if panic leads to widespread withdrawals.