Banks Lean Harder on Fed’s Emergency Lending Program

Institutions increased borrowing from the Bank Term Funding Program (BTFP) to $53.7 billion last week, up sharply from the $11.9 billion used in the first week of the program.

The emergency federal program was set up following the collapse of Silicon Valley Bank to prevent a failure in the banking system. 

The Bank Term Funding Program (BTFP) gives loans to banks on longer one-year terms, while valuing collateral assets like Treasuries at the full price paid, not the current market value. Officials set up the program on March 12, shortly after the Federal Deposit Insurance Corporation stepped in to take over SVB, as part of an effort to assure depositors could be confident in the banking system. 

The data comes after U.S. Treasury Secretary Janet Yellen told Congress regulators could come in again to help failing smaller- and mid-sized banks, seeking to clarify earlier comments that raised concerns over how much action the government could take to prop up the banking system.

Balance Sheet Rises Again

Overall, last week’s lending pushed the federal reserve balance sheet up another $94.5 billion, which comes in two-thirds lower than the $297 billion in assets added last week. 

While more banks leaned on BTFP, Antoine Bouvet, head of IMG’s European Rate Strategy pointed out that the increase in the use of the Fed’s emergency program also comes as the use of the so-called “discount window” dropped to $110 billion from last week’s $153 billion.

"More of a re-shuffling than an increase in bank borrowing from the Fed,” Bouvet said on Twitter.

The Repo Facility Mystery - A Whodunit?

The Federal Reserve’s weekly report also included a mystery:  Which country, central bank or monetary authority took $60 billion from the Fed’s repurchase agreement program?

The exchange includes a period of secrecy, so the recipient of the funding wasn’t announced, but economists and market watchers on Twitter speculated over which institution or country needed the program’s short-term access to dollars.

Not only did the Fed’s FIMA Repo Facility provide liquidity, where U.S. treasuries can be exchanged for dollars, but the $60 billion transaction was the limit for any counterparty in the transaction.

“Which likely means someone maxed out their line,” wrote Joey Politano, author of the economics newsletter Apricitas Economics.

Brad Setser, senior fellow at the Council of Foreign Relations, joined many others in speculating it was the Swiss National Bank, which last week agreed to help support UBS’s purchase of Credit Suisse. If it was the Swiss, Setser said the liquidity infusion may have helped limit the impact of the Credit Suisse crisis.

However, since central banks like the SNB have access to other lines of liquidity from the Federal Reserve, some speculated it could have been the treasury of another country, including South Korea, Australia, Turkey or perhaps even China.