(Bloomberg) — Banks borrowed a combined $164.8 billion from the two Federal Reserve backstop facilities in the most recent week, indicating escalating funding tensions following the Silicon Valley bank failure.
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Data published by the Fed showed $152.85 billion in borrowing from the discount window – the traditional liquidity backstop for banks – in the week ended March 15, a record high from $4.58 billion the previous week. The previous all-time high was $111 billion 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 was launched on Sunday.
Taken together, the credit boosted through the two backstops shows a banking system that is still fragile and dealing with deposit migration in the wake of the failure of Silicon Valley Bank of California and Signature Bank of New York last week.
Other credit extensions during the week totaled $142.8 billion, reflecting lending by the Federal Deposit Insurance Corp. to bridge banks for SVB and Signature Bank.
“It’s in line with our expectation,” said Michael Gapen, head of US economics at Bank of America Securities in New York. Gapen said the higher rate of discount-window borrowing on the new bank term funding facility may reflect the wider set of collateral that banks are able to pledge at the window.
On Thursday afternoon, the nation’s biggest banks agreed on a plan to freeze about $30 billion with First Republic Bank in an effort by the US government to stabilize the California-troubled lender.
The US Treasury and Federal Deposit Insurance Corp stepped in over the weekend and exercised unusual powers to protect all depositors of both SVB and Signature. Typically, depositors are only insured up to $250,000.
The Fed took the extraordinary step of expanding the safety net by guaranteeing enough liquidity to meet all the deposit needs of banks. BTFP allows banks to exchange government collateral at par 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 an upper bound for how much liquidity the new backstop could ultimately provide, though they put the estimate at about $460 billion, based on the amount of uninsured deposits at six U.S. banks. A small calculation has also been developed. Highest ratio of uninsured deposits to total deposits.
(Updated with Economist comments in sixth paragraph.)
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