US banks borrowed $164.8 billion to the Federal Reserve this week, a sign of mounting funding tensions following the failure of Silicon Valley Bank.
This liquidation was caused by SVB’s difficulty in selling its assets to obtain liquidity. The markets are demanding that banks higher interest rates in return to give them money in cash to assume, for example, a withdrawal of deposits. To prevent more cases where a bank has the assets but not the ability to convert them into liquidity, the Fed is putting a historic line of credit on the table.
Data released by the Fed showed 152.850 million in loans from the discount window, the traditional liquidity support for banks, in the week that ended on March 15, a historical record and that leaves the 4.580 million from the previous week. The previous all-time high was $111 billion reached during the 2008 financial crisis.
The data also showed 11.900 million in loans through the Fed’s new emergency facility known as the Bank Term Financing Program, which went live on Sunday.
The Federal Reserve offers banks from that day the possibility of receiving loans in exchange for high-quality bonds, mortgages and other assets, at their face value (the price that bond had at the time of its issuance) at a rate of only 0.1% above the interest charged to banks for short-term loans. Traditionally, central banks charge much higher interest for this ’emergency liquidity’.
Taken together, the credit granted through the two endorsements shows a banking system that is still fragile and faces a ‘tsunami’ of movements in deposits following the failure of Silicon Valley Bank and Signature Bank.
Apart from that, Federal Deposit Insurance lent close to 142,800 million
Apart from these figures, Federal Deposit Insurance lent close to 142.800 million to the banks that assumed the deposits of the failed banks. In total, the Fed’s balance sheet has skyrocketed by $300 billion since the SVB bankruptcy.
As of Thursday afternoon, the country’s largest banks agreed on a plan to deposit around 30,000 million at First Republic Bank in an effort orchestrated by the Joe Biden government to stabilize the financial sector, still unstable and full of uncertainty after the collapse of several banks.
The US Treasury and the Federal Deposit Insurance Corporation stepped in and exercised unusual powers over the weekend to protect all depositors of both SVB and Signature. Typically, depositors are only insured up to $250,000.
JPMorgan estimated at 2 trillion dollars the amount of liquidity
The Fed also took the extraordinary step of extending the safety net by ensuring that banks would have enough liquidity to meet all deposit needs. The BTFP allows banks to offer guarantees at par in exchange for a one-year loan. Government officials said at the time that there was enough collateral in the banking system to cover all depositors.
JPMorgan analysts estimated at 2 trillion dollars the upper level of the amount of liquidity the new support could ultimately provide, although they also developed a smaller estimate of about $460 billion based on the amount of uninsured deposits at six US banks that have the highest proportion of uninsured deposits on total deposits.