Emergency Bank Lending Drops for Third Straight Week after Crisis Measures

Borrowing from new Bank Term Funding Program fell for first time, dropping 9%

USA, California, San Francisco, Federal Reserve Bank, low angle view with wide-angle lens
Ed Freeman / Getty Images

Key Takeaways

  • The banking sector further stabilized as bank borrowing dropped by another 3.4%.
  • Borrowing from the emergency Bank Term Funding Program dropped for the first time since the program was established. 
  • Discount window borrowing was also down to $67.6 billion.

U.S. banks sought less assistance from federal regulators, with Federal Reserve emergency lending dropping for a third straight week, after the collapse of Silicon Valley Bank and the Federal Deposit Insurance Corp.'s takeover of Signature Bank. 

Emergency lending to banks dropped to $311.7 billion, down 3.4% from the previous week. For the first week since it was established, mid-sized banks decreased their use of the emergency Bank Term Funding Program (BTFP), as balances dropped 9.1%  to $71.8 billion. Borrowing from the discount window fell 3% to $67.6 billion, while Federal Deposit Insurance Corporation (FDIC) lending dropped another 1.1%.

The Federal Reserve provided $343.7 billion in liquidity to stressed banks, immediately after the problems at SVB and Signature, with some lending facilities overtaking 2008 financial crisis levels. But after its sharp peak, the banks have decreased their reliance on emergency federal lending. 

Investors are watching the Federal Reserve’s banking data to see whether the turmoil in the sector will continue. This week, billionaire investor Warren Buffett said he believed there would be more bank failures, but that depositors wouldn’t be hurt. 

Several Federal Reserve officials contemplated pausing the Fed's rate hike cycle before voting to raise rates again on March 22, according to minutes of their last meeting. Meanwhile, staff at the Federal Reserve gave a bleaker assessment of the economy than Chairman Jerome Powell has expressed, as it projected a “mild recession starting later this year.”

Banks Still Under Pressure

The banking “scare” may be over, but the pressures on the banking system are not, Ben Laidler, global market strategist at social trading and investing platform eToro, said in a statement.

The Fed’s liquidity support and deposit guarantees kept the worst of the banking crisis from happening, he wrote, but the banking sector will still be threatened by a problem that predated the SVB collapse: depositors are taking their money out of banks and chasing higher-yielding money market funds.

“But many of the macro consequences remain, and history reminds these can be big and global,” Laidler wrote. “Depositors are naturally moving to higher yield money market funds, which are at a record $5.2 trillion.”

Indeed, last week’s Federal Reserve data showed U.S. bank deposits dropped by $237 billion over the last two weeks of March, with deposits being down 4.9% year-over-year for the week ending March 29.

Also, the data show lending to businesses declined for the second straight week following the SVB failure, with the total amount of commercial and industrial loans decreasing $68 billion.

The banks’ need for emergency liquidity from the Federal Reserve, along with the recent outflow of deposits, could play a factor in upcoming bank earnings, which include JPMorgan Chase’s scheduled release on Friday

Article Sources
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  1. Federal Reserve. “Factors Affecting Reserve Balances, April 13,  2023.”

  2. Federal Reserve. “Factors Affecting Reserve Balances, March 23,  2023.”

  3. Federal Reserve. FOMC Minutes March 21-22, 2023

  4. Twitter. Mohamed A. El-Erian Status

  5. Ben Laidler, etoro.com. “Banking pressures are not over.”

  6. Federal Reserve. Assets and Liabilities of Commercial Banks in the United States - H.8 - April 07, 2023

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