Banks benefit from the Fed’s crisis lending programs

Signage outside a Signature Bank branch in New York, United States, on Monday, March 13, 2023.

Stephanie Keith | Bloomberg | Getty Images

Financial institutions took billions in short-term loans this week from the Federal Reserve as the industry weathered a severe crisis of confidence and liquidity, the central bank reported Thursday.

Using tools the Fed launched Sunday, banks looking for cash infusions borrowed $11.9 billion from the Bank Term Funding Program. Under this facility, banks can take one-year loans on favorable terms in return for high-quality collateral.

Most banks took the more traditional route, using the Fed’s discount window under slightly less favorable terms, with borrowing rising by $148.2 billion for the week. The discount window provides loans of up to just 90 days, while the BTFP term is one year. However, the Fed eased the terms of the discount window to make it more attractive to borrowers in need of working capital.

There was also a large increase in bridging loans, also made over short maturities, totaling $142.8 billion, primarily to now-closed institutions to meet depositor obligations and other expenses.

The data comes days after regulators shut down Silicon Valley Bank and Signature Bank, two institutions favored by the high-tech community.

With great fear that customers who exceeded the $250,000 Federal Deposit Insurance Corp. guarantee could lose their money, regulators stepped in to back all deposits.

The programs boosted the totals on the Fed’s balance sheet, escalating the total by about $297 billion.

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