May 18, 2023
Fed Loans to Banks Rise as Term Funding Program Reaches New High
, Bloomberg News
(Bloomberg) -- Borrowing from the Federal Reserve’s backstop liquidity facilities rose last week, with loans outstanding from one of them hitting a fresh high, as financial stresses lingered in the banking system.
The US central bank had a combined $96.1 billion of loans outstanding to financial institutions through two backstop lending facilities in the week through May 17 — up from $92.4 billion in the previous week, though still well below the peak of $164.8 billion in March — according to data published Thursday.
Outstanding borrowings from the Fed’s discount window ticked down to $9 billion Wednesday, while loans from the Bank Term Funding Program rose to $87 billion. That marked a new high for BTFP participation, which allows banks to use Treasury and agency mortgage-backed securities as collateral for loans up to one year.
Some regional bank stocks are still under pressure, with the KBW Regional Banking Index down 26% this year, though the index has recovered some this week amid indications of stability in deposits.
Policymakers have expressed concern about the impact of bank turmoil on lending activity and the broader economy, though they have also suggested the worst of the stresses on individual institutions may be over.
“I don’t know that we have a crisis right now,” Atlanta Fed President Raphael Bostic said Tuesday at his bank’s financial-markets conference. “We have a small number of institutions that had risk management strategies that worked less well than you would like” and “so we’ve not seen this contagion take place.”
The discount window is the Fed’s oldest liquidity backstop for banks. Usage collapsed in the first week of May following the seizure of First Republic Bank, which at the time accounted for the majority of outstanding loans through the facility.
The BTFP, meanwhile, was launched March 12 after the Fed declared emergency conditions following the collapse of California’s Silicon Valley Bank and New York’s Signature Bank.
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