Fat bank loans high after Silicon Valley Bank, Signature Bank failure

Photo: Al Drago/Bloomberg via Getty Images

Emergency loans to banks rose to a new record in the week to Wednesday, surpassing previous highs reached during the 2008 financial crisis.

Why it matters: The details came in a weekly Federal Reserve report released Thursday, which is sure to attract more attention for what it may reveal about stress in the banking system following the failures of Silicon Valley Bank and Signature Bank.

By the numbers: As of Wednesday, banks had $153 billion in loans in the “discount window,” a long-standing tool through which the Fed provides cash to banks in need of liquidity by lending against solid collateral.

  • The previous record for loans with discount windows was $111 billion in 2008. It also reached $51 billion in the early days of the pandemic.
  • The banks also had $12 billion in credit from the Bank Term Funding Program, which was announced Sunday night, to make bank loans available on very favorable terms. The report does not say which (or how many) banks used the facility and will not do so for another year.
  • The Fed also extended $143 billion to back the FDIC’s guarantee of all depositors in failed Silicon Valley Bank and Signature Bank.

Between the lines: Banks wishing to access loans through the emergency facility can pledge long-term securities such as government bonds at their original value, allowing them to borrow against it even if these assets have declined in volume.

  • The total value of the pledged securities was about $16.9 billion on Wednesday – higher than the loan value, suggesting that banks have not yet lent as much as their collateral allows.

Bottom line: The report sheds light on banks’ demand for short-term cash in the early days of the fallout from the Silicon Valley Bank crisis. Additional reports will be looked at for more evidence of how the banks are performing.

  • Also Thursday, a group of major banks including JPMorgan, Bank of America and Citigroup said they would pour $30 billion into First Republic Bank, another West Coast regional lender that has been a growing focus of widespread fears of financial contagion.

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