Banks benefit from Fed lending programs

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

Stephanie Keet | Bloomberg | Getty Images

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

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

Most banks went the more traditional route and used the Fed’s discount window on slightly less favorable terms, with loans rising by $148.2 billion this week. The rebate window offers loans of up to just 90 days, while the BTFP term is one year. However, the Fed relaxed the terms of the discount window to make it more attractive to borrowers who need working funds.

There was also a large increase in bridging loans, also made in the short term, totaling $142.8 billion, mostly made to institutions that are now closed so they could meet obligations related to depositors and other expenses.

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

With deep fears that customers using the $250,000 Federal Deposit Insurance Corp.

The programs increased the totals on the Fed balance sheet, increasing the total by about $297 billion.

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