US Banks Borrow $148B from Fed's Discount Window This week

This week, U. S. banks borrowed $164.8 billion from two Federal Reserve backstops facilities.

US banks borrowed $164.8 billion from two Federal Reserve backstops facilities this week. This includes the Fed's discount window, which is used to reduce liquidity concerns. The discount window jumped to $152B, from $4.58B the week before. This is a new record that beats the 2008 financial crisis's $111B high. This record borrowing follows the collapse of Silicon Valley Bank and the subsequent closure by Signature Bank, which caused shock waves in the financial markets.

Silicon Valley Bank, a popular lender to Silicon Valley tech and growth startup founders, was forced to close its doors last week following a bank run. According to DFPI filings, SVB's depositors initiated $42 Billion in withdrawals on March 9, pushing the bank into a negative balance of almost $1 Billion.

The Federal Deposit Insurance Corporation (FDIC), took over the bank. This was bad news for the American banking industry, but depositors were also shocked when regulators, including the Federal Reserve Bank and the US Treasury Department, closed Signature Bank over the weekend. They cited systematic risks.

On Sunday, regulators announced a series of emergency measures to prevent a banking crisis and restore trust in the banking system. The FDIC, Treasury Department, and the US Federal Reserve announced that they would use FDIC's insurance funds in an effort to stop depositors from losing money.

In a joint statement, regulators stated that depositors will have access to all their money beginning Monday. The Fed also introduced a new Bank Term Funding Program, which provides additional funding for eligible depository institutions.

According to Fed statistics, banks worried about liquidity borrowed $164.8 billion from the Federal Reserve's two backstop facilities in the event of SVB's collapse. This is a record that was set during the 2008 financial crisis.

Data also showed that $11.9 billion was borrowed by financial institutions from the Fed's newly-launched emergency backstop, the Bank Term Funding Program. The FDIC also provided $142.8 billion in loans to bridge banks for Signature Bank and SVB.

A group of America's biggest banks pledged $30 billion to First Republic Bank. First Republic Bank is currently in crisis due to investors and customers. The $30 billion infusion will allow the San Francisco lender to meet customer withdraws during a turbulent week for banks.

Due to the recent US lender scandal, the Fed is considering tightening liquidity and capital requirements for banks of medium size. The central bank is currently reviewing how to increase annual stress tests that evaluate banks' ability to remain buoyant.

Analysts have suggested that the Fed's latest lending program could help the central bank further reduce its huge balance sheet. Because the Fed's lending program includes swapping bonds held by banks for cash, this is a key component.

According to Wrightson ICAP analysts, if those bonds end up on the central banks' $8.4 trillion balance, it could be a complement to the Fed's rate hikes in its fight to curb inflation. They also added:

"The new Fed facility's more favorable financial terms could help to divert substantial amounts of borrowing from (Federal Home Loan Banks) as well as increase the Fed's balance sheets. The long-awaited liquidity shortage resulting from Fed's asset runs could be delayed again."