High Usage of New Federal Reserve Lending Program Continues as Banks Counter Spring Disruption


Months after a series of bankruptcy cases shook the global banking industry, U.S. banks continue to rely extensively on an emergency loan facility established by the Federal Reserve to assist depository institutions in meeting withdrawal needs. Fed data released on Thursday revealed that Fed loans through this new facility, the Bank Term Funding Program, increased to $105.7 billion as of Wednesday, from $105.1 billion a week earlier.

As a consequence, borrowings at the Fed’s discount window decreased to $1.9 billion from $2.2 billion the week prior. The rebate window is the central bank’s established mechanism for distributing financial emergencies. In the past, banks have avoided using it for fear of being perceived as feeble or troubled, but the Fed has recently begun encouraging more banks to sign up.

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Fed Survey Reveals Favorable Perception of New Lending Facility’s Attractive Feature

Photo by: Jason Reed via REUTERS

A recent Fed survey of senior financial officers from nearly 100 banks casts a different perspective on the utilization of the new lending facility established in March. A survey conducted in May of 58 U.S.-based institutions and 34 U.S. subsidiaries of foreign banks, the ability to borrow against collateral at face value, as opposed to its market value as beneath the discount window, was viewed as the new program’s most attractive feature.

A survey published on Tuesday found that 22% of the country’s banks borrowed from the program and that 55% of banks had signed up or posted collateral to help with borrowing when needed. It was discovered that foreign banks were much less likely to utilize the new program, with only 3% having borrowed and 21% taking any measures to prepare for it.

Since the spring instability, which prompted a record $153 billion in discount-window borrowing, more than 80% of all banks polled stated that their opinion of the discount window had not changed. In the weeks that followed, banks progressively reduced their discount window usage and increased their new program loans.

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Source: Market Screener, Reuters

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