Banks’ borrowing from the Federal Reserve declined from levels seen earlier this month, offering more evidence that pressures banks faced are receding.
As of the week ended March 29, borrowings by the nation’s banks from the Federal Reserve’s primary lending window totaled $88.16 billion, lower than the $110.3 billion in the prior week and down substantially from the record $153 billion posted mid-March. The peak level during the 2008-2009 financial crisis was over $110 billion.
The trend lower supports the narrative that bank runs, or fear that they could happen, aren’t forcing lenders to borrow from the Fed. That is what happened after Silicon Valley Bank and Signature Bank collapsed early this month.
Before the collapse, the central bank’s primary lending facility, also known as the discount window, had been all but deserted by banks. Borrowing from the window is meant to help banks deal with short-term liquidity crunches and is generally seen as a sign of weakness.
The resurgence in mid-March from the discount window indicated that banks were under pressure.
The failures of Silicon Valley Bank and Signature Bank had prompted customers of other regional banks to pull out their money, while the Fed’s rapid rate increases over the previous year left banks with big unrealized losses on their fixed-income investments. Selling those holdings to raise cash to pay depositors would have forced banks to crystallize the losses, cutting into their capital bases. That led them to tap the Fed’s lending programs.
But since the mid-March panic, no additional banks have collapsed. A consortium of big lenders deposited money into
First Republic Bank
(ticker: FRC), which had been seen as a trouble spot. Regulators repeatedly said they intend to make customers whole even for losses beyond the $250,000 covered by the Federal Deposit Insurance Corp.
The data on Thursday offered another boost to confidence. Some borrowing shifted to the freshly created Bank Term Funding Program, which had an outstanding balance of $64,4 billion in the latest week, up from $53.7 billion earlier, given its attractive terms, but total lending dropped.
Including the primary lending facility and the BTFP, loans outstanding totaled $152.6 billion, compared with about $164 billion for each of the prior two weeks.
The loans from the primary lending facility, offered at an interest rate of 5% as of Thursday, are typically repaid fairly quickly—about 90 days. Loans under the Bank Term Funding Program, now at a fixed rate of 4.8%, must be paid back within a year.
The Fed discloses the names of its borrowers only after two years.
Banks themselves are generally hesitant in talking about borrowing from the Fed because that can signal a lack of funding from other sources, such as deposits. First Republic, though, said March 12 it had obtained funding from the Fed, likely to calm investors’ nerves during the height of the bank turmoil.
The borrowing is helping to fill a liquidity gap created by depositors pulling their cash, partly in search of higher returns from money-market funds. Deposits in U.S. banks dropped by about $100 billion for the week ended March 15, according to Fed data. But a decline in borrowing over the latest week is an indication that deposits are relatively stable and that other funding sources haven’t dried up. Data on aggregate deposits come out on Friday.
The most notable place where funding stress appeared was in the Foreign and International Monetary Authorities or FIMA Repo Facility, a key program allowing foreign central banks to temporarily exchange their U.S. Treasury securities for U.S. dollars, backstopping them from selling Treasuries at distressed prices to obtain U.S. dollars.
It showed borrowing of $55 billion in the latest week, after posting a surprise $60 billion in the week earlier, dramatically overshadowing a $1.4 billion peak seen during the pandemic.
The levels of FIMA borrowing have been at zero for the most part of its existence.
Write to Karishma Vanjani at karishma.vanjani@dowjones.com
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