- Institutions borrowed $53.7 billion from the Bank Term Funding Program on Wednesday, a sharp increase from $11.9 billion last week.
- Another category of loans, mainly to closed banks to meet depositor obligations and other expenses, also skyrocketed. Those loans rose to $179.8 billion from $142.8 billion last week.
- The new bank financing program was introduced on March 12 to ease similar burdens on banks and other institutions; it makes one-year loans secured by government bonds or other assets and pays full price for the assets even if their market value is lower.
Federal Reserve Board Chairman Jerome Powell holds a news conference after the Fed hiked interest rates by a quarter of a percentage point following a two-day Federal Open Market Committee (FOMC) meeting on interest rate policy in Washington March 22, 2023.
Leah Millis | Portal
American banks have increased their reliance on a new Federal Reserve lending program created after the Silicon Valley bank collapsed this month.
Institutions borrowed $53.7 billion from the Bank Term Funding Program on Wednesday, a sharp increase from $11.9 billion last week.
Thanks to the rising interest rate environment, banks are sitting on unrealized losses on bond holdings. That problem contributed to the implosion of SVB, which was forced to sell its holdings at a nearly $2 billion loss earlier this month. Prices fall when interest rates rise, which led to the losses.
The new bank financing program was introduced on March 12 to ease similar burdens on banks and other institutions; it makes one-year loans backed by government bonds or other safe assets and pays full price even if their market value is lower.
Another category of loans, mainly to closed banks to meet depositor obligations and other expenses, also skyrocketed. Those loans rose to $179.8 billion from $142.8 billion last week. Regulators this month seized Silicon Valley Bank and Signature Bank after depositors withdrew their savings.
Meanwhile, the use of the discount window, which is the traditional way they borrow money from the Fed, has declined this week. Borrowing there fell to $110.2 billion from $152.8 billion last week. The discount window offers market value rather than face value for the securities and provides 90-day loans versus the one-year term under the BTFP.