Banks Rush to the Fed for Liquidity

Savage Premium Subscription

The Federal Reserve on Thursday released its latest weekly snapshot of the central bank’s balance sheet. As of March 15, the level of borrowings from the Fed’s liquidity and credit facilities had risen nearly 2,000 percent from the prior week, rising from $15.2 billion to $318.1 billion.

To put that in historical context, the 2020 pandemic level of borrowings reached only $129.6 billion. The last time borrowings were this high was November of 2008, following the collapse of Lehman Brothers.

Lending under the Fed’s “primary credit” facility—known as the discount window—jumped from $4.6 billion to $152.9 billion. The Fed describes this as “a lending program available to depository institutions that are in generally sound financial condition. Primary credit is available in terms from overnight to 28 days. In extending primary credit, Reserve Banks must judge that the borrower is likely to remain eligible for primary credit for the term of the loan.”

The other half of the loans came from “other credit extensions,” most likely the Fed’s new Bank Term Funding Program. This is the facility that lets banks borrow against Treasuries and government-backed mortgage bonds at par. The goal is to provide banks with liquidity without causing them to realize losses by selling loans at a discount because their coupons are below the prevailing interest rate.