Emergency Bank Lending Falls After First Republic Takeover

Borrowing from a federal program set up to help banks in the wake of three recent failures plummeted after First Republic Bank was taken over by the Federal Deposit Insurance Corp. (FDIC) and sold to JPM Morgan Chase (JPM), indicating that First Republic accounted for much of the emergency borrowing after the recent bank turmoil.

Bank borrowing from the Federal Reserve's discount window dropped almost 93% to $5.3 billion, down from $73.9 billion the previous week, before the First Republic Bank failure over the weekend. Borrowing from the Bank Term Funding Program (BTFP), another emergency lending measure created by the Federal Reserve, also fell, to $75.7 billion, a decline of almost 7% from a week earlier.

First Republic’s borrowing from the discount window and BTFP were moved to another place on the Fed's balance sheet, along with the lending the Federal Deposit Insurance Corp. needed to cover Silicon Valley Bank and Signature Bank, the Fed said in a statement. That lending is up 33% to $228.2 billion. 

The decline in bank borrowing comes amid another rough week for regional banks, starting with the FDIC takeover of First Republic Bank, then selling most of the bank's assets to JPMorgan. 

Regional bank stocks lost value in trading this week, to their lowest levels since 2020, while the Dow Jones Industrial Average dropped almost 300 points today to move to negative territory for the year. PacWest Bancorp (PACW) shares were down more than 50% today, while shares of both First Horizon Bank (FHN) and Western Alliance Bancorp. (WAL) lost more than 30% of their value. 

After the FDIC takeover of Silicon Valley Bank and Signature Bank, other banks rushed to take advantage of federal lending options, including the short-term discount window that banks have traditionally used. That lending program soared to levels even higher than even the 2008 financial crisis. 

The Bank Term Funding Program was created after the Silicon Valley Bank failure and the takeover of Signature Bank by the Fed to give other institutions better terms than the traditional “discount window” borrowing.  First Republic’s use of discount window borrowing shows that the BTFP program, and its specific focus, may not have helped some regional banks due to their risk profiles.