Banks take advantage of Fed crisis lending programs

Signage outside a Signature Bank branch in New York, U.S., on Monday, March 13, 2023.

Stephanie Keith | Bloomberg | Getty Images

Financial institutions took out billions in short-term loans from the Federal Reserve this week as the sector faces a severe crisis of confidence and liquidity, the central bank reported on Thursday.

Using the tools the Fed rolled out on Sunday, banks seeking liquidity injections borrowed $11.9 billion from the banks’ term funding program. Under this facility, banks can take out one-year loans on favorable terms in exchange for high-quality collateral.

Most banks took the more traditional route, using the Fed’s discount window on slightly less favorable terms, with borrowings totaling nearly $153 billion. The forgiveness window offers loans for up to 90 days only, while the BTFP term is one year. However, the Fed has relaxed conditions at the discount window to make it more attractive to borrowers in need of operating funds.

There was also a surge in bridging loans offered, also short-term, totaling $142.8 billion, provided mostly to now-closed institutions so they can meet depositor and other spending obligations.

The data comes just days after regulators shuttered Silicon Valley Bank and Signature Bank, two institutions favored by the high-tech community.

With fears high that customers who have exceeded the Federal Deposit Insurance Corp.’s $250,000 guarantee. lose their money, regulators have stepped in to safeguard all deposits.

The programs increased the Fed’s balance sheet totals, boosting the total by some $297 billion.

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