In the most recent week, banks borrowed a combined $164.8 billion from two Federal Reserve backstop facilities, indicating increased funding strains following the failure of Silicon Valley Bank. Data published by the Fed revealed that borrowing from the discount window, which is the traditional liquidity backstop for banks, reached a record high of $152.85 billion in the week ended March 15, up from $4.58 billion the previous week.
US Banks borrow $164.8 billion from Fed
The data also showed $11.9 billion in borrowing from the Fed’s new emergency backstop, the Bank Term Funding Program, launched on Sunday. The total credit extended through the two backstops indicates that the banking system is still fragile and struggling with deposit migration after the failure of Silicon Valley Bank and Signature Bank of New York. Other credit extensions totaled $142.8 billion during the week, reflecting lending by the Federal Deposit Insurance Corp. to bridge banks for SVB and Signature Bank. The emergency loans reversed around half of the balance-sheet shrinkage that the Fed has achieved since it began quantitative tightening in June last year. The nation’s biggest banks agreed on a plan to deposit about $30 billion with First Republic Bank to stabilize the battered California lender.
The US Treasury and the Federal Deposit Insurance Corp. exercised unusual powers over the weekend to protect all depositors of both SVB and Signature, and the Fed extended the safety net by guaranteeing banks enough liquidity to meet all deposit needs. The Bank Term Funding Program allows banks to tender government collateral at par in exchange for a one-year loan. Analysts at JPMorgan Chase & Co. estimated that the new backstop could ultimately provide up to $2 trillion in liquidity.