Sunday, 16 June 2024

Banks demand unprecedented liquidity from US Fed following ‎SVB collapse


Data from the Federal Reserve (the US central bank) showed that banks sought to obtain emergency liquidity in record amounts during the past few days in the wake of the collapse of Silicon Valley and Signature banks, which in turn led to the squandering of efforts made by the central bank over months to reduce the size of its budget.

According to Reuters, as of Wednesday, banks had received $152.9 billion, an unprecedentedly high amount, from the discount window of the US Central Bank, which is a traditional facility that acts as a last resort. It also obtained loans worth $11.9 billion from the bank’s term lending program recently introduced by the US Central Bank. Discount window borrowing surpassed the previous record of $112 billion in the fall of 2008, during the worst of the financial crisis.

Although the borrowing amounts are large, some analysts felt comfortable with them and said that the matter reduces fears that the events witnessed in the past days will escalate to a level that could lead to the collapse of the entire economy.

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“The numbers, as we see them here, are more consistent with the idea that this is just an isolated problem with a few banks,” said Thomas Simmons, money market economist at Jefferies investment bank.

He added that the government’s support efforts appear to be working, and the amount of money disclosed by the Federal Reserve on Thursday indicates that “it is not a huge problem at the system level.”

Increased emergency lending halted the Federal Reserve’s budget contraction, and even marked growth.

After reaching a peak of near $9 trillion last summer before the central bank began taking action to reduce its holdings of Treasury and mortgage-backed securities, total holdings fell to $8.39 trillion on March 8, before rising to about 8.7 trillion. dollar on Wednesday, the highest since November.