Fed bank lending high after Silicon Valley Bank and Signature Bank bankruptcies

Emergency lending to banks hit a new record high in the week to Wednesday, surpassing previous highs reached during the 2008 financial crisis.

why is it important: Details came in a weekly report from the Federal Reserve released on Thursday, which will certainly draw more attention for what it may reveal about tensions in the banking system after the failures of Silicon Valley Bank and Signature Bank .

By the numbers: As of Wednesday, banks had $153 billion in “discount window” loans, a longstanding tool through which the Fed provides liquidity to banks in need of cash by lending against strong collateral.

• The previous record for borrowing at the discount window was $111 billion in 2008. It also hit $51 billion at the start of the pandemic.
• The banks also had $12 billion in credit under the Banks’ Term Funding Program, announced late Sunday, to make bank loans available on highly concessional terms. The report does not specify which banks (or how many) have used the facility and will not do so for another year.
• The Fed also granted $143 billion to support the FDIC guarantee to all depositors of the failed Silicon Valley Bank and Signature Bank.

Between the lines: Banks seeking to access loans through the emergency facility can pledge long-term securities such as treasury bills at their original value, allowing them to borrow against it even if these assets have decreased in volume.

• The total value of the pledged securities was about $16.9 billion on Wednesday, which is higher than the value of the loan, suggesting that the banks have not yet borrowed as much as their collateral allows.

The bottom line: The report sheds light on banks’ demand for short-term liquidity as the fallout from the Silicon Valley Bank crisis begins. Other reports will be reviewed for more evidence on how the banks are doing.

• Also on Thursday, a group of big banks including JPMorgan, Bank of America and Citigroup said they would inject $30 billion into First Republic Bank, another West Coast regional lender that has been the subject of widespread fears. regarding financial contagion.