How U.S. Banks Help Fund the Deficit -- And Prop Up the Price of Treasuries

U.S. banks have been piling on U.S. Government securities since the beginning of the crisis:


(Source: Board of Governors of the Federal Reserve System; St Louis Fed. Click to enlarge.)

This can be explained by the need for banks to reduce risk on their balance sheet, and by their inability to find borrowers at the rates they suddenly began to charge. This renewed demand certainly helped push the Treasury prices higher despite the massive supply of the last couple of years.

Looking at absolute numbers is also informative:


(Source: Board of Governors of the Federal Reserve System; St Louis Fed. Click to enlarge.)

We learn that about $300bn of Govt securities were absorbed by US banks alone, thus helping fund the stimulus and the deficit. (Which in turn may explain the relatively lenient attitude of the Government toward banks, capital requirements, compensation, etc.)