Emergency borrowing from the Federal Reserve was a mixed bag, though largely unchanged this week, indicating to some observers that liquidity needs in the banking sector may have stabilized.
Banks borrowed just under $164 billion from the discount window — the Fed's last-resort lending facility — and a new lending program created to quell concerns during the crisis, according to the central bank's weekly balance sheet report. That total was down $800 million from last week.
"When you look at the Fed balance sheet, we definitely remain in a high-stress situation, but the situation is not getting any worse," UBS Equities analyst Erika Najarian said on CNBC on Friday morning.
Also, no banks shifted from primary credit — which is available only to banks deemed to be in sound financial conditions — to secondary credit during the week, according to an analyst note published Friday by Moody's, indicating that "US bank supervisors continue to consider the banks that needed emergency support 'healthy' and not at elevated risk of imminent failure."
Despite the overall fall in borrowing levels seen last week, bank usage of the Fed's new lending facility, the Bank Term Funding Program, ticked up considerably, from
Steven Kelly, senior research associate at the Program on Financial Stability at Yale University's School of Management, attributed this gravitation to the BTFP, also known as the super discount window, to the program's "more generous" terms. Borrowers can post collateral to the new facility at full par value rather than at a discount to market value, as is the case for the traditional discount window. Loans can also have terms of up to one year instead of 90 days.
Despite the similar size changes at the two facilities, Kelly said the rise in super discount window borrowing is not necessarily tied to the fall in traditional discount window use.
"Even in the absence of the BTFP, we may have seen discount window borrowing start to come down," he said.
Another key source of emergency funding for banks, the Federal Home Loan Bank System, also issued far fewer emergency loans, known as advances, last week. FHLB borrowers, which include some nonbank financial institutions, took out just $32 billion in advances this past week, according to an analyst note from JPMorgan Markets, down considerably from the
"Overall, banks do not appear to be reaching for liquidity and it is possible that some of the borrowing observed last week was proactive in nature," JPMorgan analysts Jay Barry and Kabir Caprihan wrote in their note.
This week's balance sheet report also included encouraging signs from the international banking market, which was on rocky ground last week amid concerns over the long-troubled Swiss bank Credit Suisse. The Fed's dollar swap facility — which helps stabilize dollar-based funding markets by making dollars available to other central banks to prevent squeezes — saw only a modest increase in use, going from $472 million to $587 million.
In anticipation of greater volatility in international markets, the Fed and other central banks announced last week that they would
The Fed also increased its lending to the bridge banks set up by the Federal Deposit Insurance Corp. earlier this month to take on the assets from the failed Silicon Valley Bank and Signature Bank. Those loans grew from $142.8 billion to $179.8 billion.
During his post Federal Open Market Committee
Altogether, the Fed's balance sheet grew by $94 billion from week to week. Though much milder an increase than last week's nearly $300 billion, the uptick still nearly matched the Fed's $95 billion monthly asset roll-off, as part of its planned balance sheet reduction.
While the central bank's recent
"When it comes to financial stability, reserves need to be in the right place at the time," he said. "So while the Fed is undoing its pandemic-era [quantitative easing] still, it needs to more surgically inject reserves where they're needed. That's the ideal for the discount window all the time, and it's the aim of the new emergency facility, as well."
Kate Berry contributed to this report.
