Fed lending to banks this week eclipses 2008 financial crisis peak

Key takeaways

  • Banks are lending $11.9 billion under the new Fed program
  • Lending with discount windows is greater this week than at the height of the 2008 financial crisis
  • Regulators and economists said lending was essential to avoid a systemic crisis

The Federal Reserve lent more money to banks in the past week than it did at the height of the 2008 financial crisis.

The Federal Reserve has lent more than $11.9 billion to banks under the emergency Bank Term Funding Program (BTFP), which it launched Sunday night to help avert a banking crisis ignited by the collapse of Silicon Valley Bank. But the program is only a small part of a huge load of federal lending to banks over the past week.

With restrictions on the Federal Reserve’s discount window eased, banks lent more than $152 billion, compared with just $4.5 billion from the previous week. By comparison, weekly discount lending during the financial crisis peaked at over $110 billion on October 29, 2008. The Federal Reserve report also showed a notable jump in bridging loans, which totaled more than $142 billion for the week ending March 15.

“This massive use of emergency loans confirms that guaranteeing par for all SBV deposits was inevitable to avert a systemic crisis,” Daniela Gabor, an economics professor at the University of the West of England, Bristol, said on Twitter.

Overall, the increased lending added more than $297 billion in assets to the Federal Reserve’s balance sheet.

Federal regulators launched the emergency BTFP on Sunday night after the Federal Deposit Insurance Corp. took control of SVB, which collapsed as customers withdrew funds after the bank announced a $2 billion loss on asset sales.

The program offers a way for qualified institutions to ensure that they have the funds to meet depositor obligations. On Thursday, US Treasury Secretary Janet Yellen told lawmakers that the emergency program has helped keep the banking system on a sound footing.

The Federal Reserve also made borrowing at the discount window easier, the recently launched BTFP offered even better terms, including counting collateral at “par value”, meaning they are valued at their purchase price, not the current market price. The discount window offers banks short-term loans so they can have cash on hand. On the other hand, BTFP offers longer-term one-year loans to banks.

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