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Emergency lending to banks rose to a new record in the week to Wednesday, surpassing previous highs set during the 2008 financial crisis.
Why it matters: The details came in a weekly Federal Reserve report released on Thursday, which is sure to draw more attention because it may reveal tensions in the banking system following the collapse of Silicon Valley Bank and Signature Bank.
Using the numbers: As of Wednesday, banks had $153 billion in loans in the “discount window,” a longstanding tool the Fed uses to make cash available to banks that need liquidity by lending against solid collateral.
- The previous record for discount window loans was $111 billion in 2008. It also hit $51 billion in the early days of the pandemic.
- Banks also had a $12 billion loan from the Bank Term Funding Program announced Sunday night to make bank loans available on ultra-cheap terms. The report does not say which (or how many) banks have tapped the facility and will not do so for another year.
- The Fed has also committed $143 billion to support the FDIC’s guarantee for all depositors in the failed Silicon Valley Bank and Signature Bank.
Between the lines: Banks wishing to access credit through the emergency facility can pledge long-term securities such as government bonds at their original value, allowing them to borrow on them even if the volume of those assets has fallen.
- The total value of pledged securities was about $16.9 billion as of Wednesday — higher than the loan value, suggesting banks have yet to borrow as much as their collateral will allow.
The final result: The report highlights banks’ demand for short-term cash in the early days of the aftermath of the Silicon Valley bank crisis. More reports will be examined to get more evidence of how the banks are behaving.
- Also on Thursday, a group of big banks including JPMorgan, Bank of America and Citigroup announced they would invest $30 billion in First Republic Bank, another West Coast regional lender that has been at the center of widespread fears over there is a financial contagion.