U.S. Federal Reserve lent US$300B to banks

Washington –

The central bank said on Thursday that cash-strapped banks had borrowed about $300 billion from the Federal Reserve (Fed) in the past week.

Almost half of the funds, or US$143 billion, went to the holding companies of two major banks, Silicon Valley Bank and Signature Bank, which went bankrupt last week, causing widespread alarm in financial markets. The Federal Reserve did not identify the banks that received the other half of the funds or disclose the number of such banks.

A holding company for the two failed banks was set up by the Federal Deposit Insurance Corporation to take over both banks. The money they borrowed was used to pay uninsured depositors, pledged as collateral by bonds owned by both banks. The FDIC has guaranteed repayment of the loan, the Fed said.

The numbers provide the first glimpse of the scale of the Fed’s support for the financial sector after two bank failures over the weekend.

The rest of the money was borrowed by banks looking to raise cash – presumably at least in part to repay depositors who tried to withdraw money. has reported inflows from smaller banks since last weekend’s bank failures.

An additional $153 billion in borrowing from the Fed over the past week came from a long-standing program called the “discount window.” It was a record level for that program. Banks can borrow up to 90 days from the discount window. Usually, in a given week, he can only borrow $5 billion out of about $4 billion through this program.

The Federal Reserve has lent another US$11.9 billion from a new facility it announced on Sunday. The new program will allow banks to raise cash and pay depositors who withdraw money.

JPMorgan Chase & Co. economist Michael Feroli said in a research report that the Fed’s support so far has been about half what it was during the financial crisis 15 years ago.

“But it’s still a big number,” he said. “The glass-half-empty view is that banks need a lot of money. The glass-half-full view is that the system is working as intended.”

Last week’s emergency loans by the Federal Reserve are aimed at addressing the main causes of two bank failures. Silicon Valley Bank and Signature Bank owned billions of dollars in seemingly safe Treasuries and other bonds that paid low interest rates.

Yields on long-term government bonds and other bonds have risen over the past year as the Fed has steadily raised its benchmark rates. As a result, the value of low-yielding government bonds held by banks has decreased.

As a result, the bank was unable to raise enough cash from the sale of the Treasury to pay the many depositors who were trying to withdraw money from the bank.

The Fed’s lending program, particularly a new facility announced on Sunday, will allow financial institutions to pledge and borrow bonds rather than sell them.

The Federal Reserve said it received $15.9 billion in collateral for the new loan facility, more than the $11.9 billion it lent. Banks may provide Fed collateral before borrowing. This suggests additional financing is underway.

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