Banks borrow $164.8 billion from Fed in rush to backstop liquidity

(Bloomberg) — Banks borrowed a total of $164.8 billion from two Federal Reserve backstop facilities over the last week, a sign of escalating funding problems following the collapse of the Silicon Valley bank.

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Data released by the Fed showed that $152.85 billion was borrowed from the discount window – the traditional liquidity backstop for banks – in the week ended March 15, a record high from $4.58 billion -dollars in the previous week. The previous all-time high was $111 billion, set during the 2008 financial crisis.

The data also showed $11.9 billion in borrowing from the Fed’s new emergency backstop, known as the Bank Term Funding Program, which started on Sunday.

Taken together, the loans provided by the two backstops show a banking system that is still fragile and grappling with deposit migration following the collapses of Silicon Valley Bank of California and Signature Bank of New York last week.

Other loan extensions during the week totaled $142.8 billion, slowing Federal Deposit Insurance Corp. lending. reflected in bridge banks for SVB and Signature Bank.

“It’s about what we expected,” said Michael Gapen, head of US economics at Bank of America Securities in New York. Gapen said the higher discount window loan rates versus the new Bank Term Funding facility may reflect the wider range of collateral banks can pledge on the window.

On Thursday afternoon, the country’s largest banks agreed on a plan to deposit about $30 billion in First Republic Bank to be orchestrated by the US government to stabilize the ailing California lender.

The US Treasury Department and Federal Deposit Insurance Corp. stepped in and exercised unusual powers over the weekend to protect all SVB and Signature depositors. Typically, depositors are only insured up to $250,000.

The Fed also took the extraordinary step of expanding the safety net, guaranteeing banks that they would have enough liquidity to meet all deposit needs. The BTFP allows banks to offer government collateral at par in exchange for a one-year loan. Government officials said at the time that there was enough collateral in the banking system to cover all depositors.

Analysts at JPMorgan Chase & Co. estimated $2 trillion as the upper limit for how much liquidity the new backstop could ultimately provide, although they have also developed a smaller calculation of around $460 billion, which is at the level of the uninsured Deposits at six US banks that have the highest ratio of uninsured deposits to total deposits.

(Updates with economist comments in sixth paragraph.)

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