On February 21, 2011, I asked the question, “Why is most of the Fed’s QE2 cash going to foreign-related banking institutions?” (http://seekingalpha.com/article/254004-why-is-most-of-the-fed-s-qe2-cash-going-to-foreign-related-banking-institutions)
At that time, foreign-related banking institutions held $538 billion in cash assets. This was up $177 billion from the end of 2010.
This was so startling because large domestically chartered commercial banks in the United States held only $486 billion in cash assets. Yet, this number was up only $72 billion from the end of last year.
Here we are at the end of April and these same foreign-related banking institutions have increased their cash hoards by another $238 billion to $776 billion.
Note that since the end of 2010, the Federal Reserve has only increased the total cash assets in the banking system by $283 billion so that almost two-thirds of the QE2 money ended up at foreign banks!
The increase since then has been $250 billion of which 95 percent of the Fed’s injections have ended up in foreign banks!
What is going on here?
And what seems to be the major movement on the other side of the balance sheet?
Well, on December 29, 2010, these foreign-related banks had a negative $420 billion in an account called “Net due to related foreign offices.” Since this was a negative it serves basically as an asset. This is the amount owed foreign-related banks in the United States from their foreign offices.
On April 13, 2011, these foreign-related banks had a positive $7 billion in this account, so that the account moved $427 billion from an asset to a liability to these foreign offices.
In other words, it seems as if a bank asset was paid down to the point that the offices of these foreign-related financial institutions now came to “owe” their foreign offices.
What offset this $427 billion movement of funds from America to offshore accounts?
It looks a lot like the $415 billion increase in cash assets.
Is this what QE2 has succeeded in doing? Is QE2 getting transferred directly into foreign-related banking institutions and then getting transferred offshore?
Sure looks like it. The evidence is in the Fed’s own statistics.
No wonder that bank loans in the United States have failed to increase. No wonder the banking industry is not contributing to a stronger economic recovery.