The Fed's Balance Sheet: "Don't look now but there's something funny going on over there at the bank George...."

The Federal Reserve just reported the [third]* largest decrease in assets on the balance sheet since Quantitative Tightening began on June 1st.

First up, yesterday's H.4.1 report:

1. Factors Affecting Reserve Balances of Depository Institutions

Millions of dollars

Reserve Bank credit, related items, and reserve balances of depository institutions at Federal Reserve Banks	Averages of daily figures			Wednesday Oct 26, 2022
	Week ended Oct 26, 2022	Change from week ended
		Oct 19, 2022	Oct 27, 2021
Reserve Bank credit	8,701,328	-   19,397	+  162,958	8,687,796
Securities held outright1	8,301,058	-   21,979	+  239,558	8,289,604
U.S. Treasury securities	5,609,377	-   11,720	+  102,257	5,608,738
Bills2	298,994	-    3,266	-   27,050	298,315
Notes and bonds, nominal2	4,834,688	-    8,416	+   89,171	4,834,742
Notes and bonds, inflation-indexed2	375,761	0	+    5,947	375,761
Inflation compensation3	99,934	-       38	+   34,189	99,920
Federal agency debt securities2	2,347	0	0	2,347
Mortgage-backed securities4	2,689,334	-   10,259	+  137,300	2,678,519

....MUCH MORE

*Two weeks in June an early October were larger but got there by way of non-QT items: interest owed the Fed etc. falling off.

And even though this week's report is below the idealized $22.7 billion weekly decrease targeted in the May 4 press release (~$15 billion/week treasuries, $7.7 billion/week MBS) it is extremely notable and is possibly the beginning of the process we were concerned with in October 24's "This Could Be Dangerous For Your Portfolios: The Quantitative Tightening That Wasn't."

If the market has gotten lulled by the FED not withdrawing liquidity, only to have that soothing backdrop reverse, all hell could break loose.

And as  noted in the October 24 post, there are $28 billion in treasuries maturing on October 31 that the Fed will either reinvest or allow to roll off, reported on November 3; and then a giant $74 billion that matures on November 15, to be reported in the November 17 H.4.1 report. Theoretically $60 billion of the $74 billion could be allowed to roll off under the monthly cap and should that happen I don't care how many stock buybacks are announced the equity market will raise a collective clamor, "Where's our liquidity?"

The headline is from the bank run scene in "It's a Wonderful Life", Frank Capra directing: