Key things
- Banks are borrowing $11.9 billion under the Fed’s new program
- The lending discount window is larger this week than it was at the height of the 2008 financial crisis
- Regulators and economists have said that lending is essential to avoid a systemic crisis
The Federal Reserve loaned more money to banks in the past week than it did at the height of the 2008 financial crisis.
The Federal Reserve loaned more than $11.9 billion to banks under the emergency Bank Term Funding Program (BTFP) it launched Sunday night to help avert a banking crisis sparked by the collapse of Silicon Valley Bank. But the program is just a small part of the massive amount of federal lending to banks over the past week.
With Federal Reserve restrictions relaxed discount windowBanks borrowed more than $152 billion, compared to just $4.5 billion the previous week. By comparison, weekly discount period borrowing during the financial crisis peaked at more than $110 billion on October 29, 2008. The Federal Reserve report also showed a sharp jump in bridging loans, which totaled more than $142 billion in the week ended March 15.
“This massive use of emergency loans confirms that guaranteeing the nominal value of all SBV deposits was inevitable to avert a systemic crisis,” Daniela Gaborová, professor of economics at the University of the West of England, Bristol, said on Twitter.
Overall, rising loans added more than $297 billion to assets Federal Reserve Balance Sheet.
Federal regulators launched the emergency BTFP on Sunday night after the Federal Deposit Insurance Corp. took control of SVBwhich collapsed as customers withdrew funds after the bank reported a $2 billion loss on asset sales.
The program offers qualified institutions a way to ensure they have the funds to meet depositor obligations. On Thursday, US Treasury Secretary Janet Yellen told the deputies that the emergency program helped keep the banking system on a solid footing.
The Federal Reserve also made it easier to borrow in the discount window, the newly launched BTFP offered even better terms, including counting collateral at “nominal value”, which means they are valued at their purchase price, not the current market price. The discount window offers banks short-term loans to keep cash on hand. On the other hand, BTFP offers longer-term one-year loans to banks.
