There are graphics that accurately represent fear. Bank demands for money in the Federal Reserve’s discount window illustrate the deposit flight panic bankers suffered after the fall of Silicon Valley Bank and Signature Bank. For the week ended this Wednesday (the reference date for the data released), banks demanded an average of $117,000 million a day from the Federal Reserve (roughly $109,000 million at current exchange rates). It’s a number that almost triples the peak of the pandemic’s outbreak and even surpasses the record of 112,000 million set during the 2008 financial crisis.
The companies requesting money through the rebate window are only known after two years have elapsed due to the stigma attached to using this window. It is assumed that companies with liquidity problems go there. In order to receive Federal Reserve loans, you must post guarantees as collateral.
The daily high was the previous Wednesday of about $152,900 million on Wednesday the 15th, but the average for the week ended that day was about $85,000 million. Now the number ending the week has been reduced, but the average has shot up to this new record.
The Federal Reserve has made the requirements for moving to the discount window more flexible, but beyond that, companies are taking preemptive use of the new liquidity facility introduced by the central bank. This new mechanism, the Term Bank Financing Program (BTFP), allows banks to obtain loans with maturities of up to one year, guaranteed by government bonds that the companies have in their portfolio. These securities are valued as collateral at full face value rather than market value, which is lower following last year’s aggressive rate hikes. These losses in the bond portfolio were one of the triggers for the downfall of Silicon Valley Bank.
In the last week, companies have borrowed an average of 34,600 million through this new system, which barely reached an average balance of 2,400 million in the previous week. The banks therefore use both windows in parallel.
The numbers come as authorities are still trying to calm financial markets and bank deposit brokerage following the recent bankruptcies of Silicon Valley Bank and Signature Bank in the United States and the near-collapse of banking giant Credit Suisse ahead of its purchase by rival UBS from the government. In the United States, the contagion has hit First Republic Bank and other mid-sized banks, and in Europe this Friday it particularly hit Deutsche Bank, which collapsed on the stock exchange.
meet caregivers
With this in mind, US Treasury Secretary Janet Yellen has called the country’s financial authorities to a previously unannounced meeting of the Financial Stability Oversight Council (FSOC) this Friday. The Treasury Secretary presides over this council, which includes Federal Reserve Chairman Jerome Powell; the Securities and Exchange Commission (SEC); those of the Deposit Insurance Fund, the FDIC, and other agencies.
The meeting will take place behind closed doors and it is unclear whether the panel will issue a statement afterwards. The Council, which meets at least quarterly, serves as a coordination forum but has no relevant powers of its own to take immediate action.
United States President Joe Biden, as well as Yellen and Powell have all reiterated over the past two weeks that the United States’ financial system is sound and that companies are well capitalized and in good shape. Yellen has also said the Treasury Department stands ready to support more companies if they need it. The nerves on the markets have not yet calmed down completely. The tightening of monetary conditions is equivalent to a rise in interest rates on top of what has already happened.
This Friday is the deadline for prospective buyers to submit offers for the Silicon Valley bank that the Deposit Insurance Fund (FDIC) has not yet been able to sell. It got rid of Signature Bank (or a large chunk of it) in an operation that left Flagstar with a portfolio of assets and liabilities without having to pay for it. The company received $2.7 billion in discounted assets.
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