The Fed lent $300 billion in emergency funds to banks last week

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WASHINGTON — Cash-strapped banks have borrowed about $300 billion from the Federal Reserve in the past week, the central bank announced Thursday.

Nearly half of the money ($143 billion) went to holding companies of two big banks that failed last week, Silicon Valley Bank and Signature Bank, sparking widespread alarm in financial markets. The Fed did not identify the banks that received the other half of the funding or say how many of them did.

The holding companies of the two failed banks were created by the Federal Deposit Insurance Corporation, which has taken over both banks. The money they borrowed was used to pay off their uninsured depositors, with bonds owned by both banks posted as collateral. The FDIC has guaranteed repayment of the loans, the Fed said.

The figures provide a first glimpse of the scale of the Fed’s assistance to the financial sector after the two banks collapsed last weekend.

The rest of the money was lent by banks looking to raise cash, probably, at least in part, to pay off depositors who tried to withdraw their money. Many megabanks, like Bank of America, have reported inflows of funds from smaller banks since last weekend’s bankruptcies.

An additional $153 billion in borrowing from the Federal Reserve over the past week has come from a long-standing program called the “discount window”; ascended to a record level for that program. Banks can borrow from the discount window for up to 90 days. any given week, only about $4 billion to $5 billion is borrowed through this program.

The Fed has loaned an additional $11.9 billion from a new credit facility it announced on Sunday. The new program allows banks to collect cash and pay depositors who withdraw money.

Michael Feroli, an economist at JPMorgan Chase, said in a research note that Fed assistance is, so far, about half what it was during the financial crisis 15 years ago.

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

Last week’s emergency loans from the Federal Reserve seek to address one of the main causes of the collapse of the two banks: Silicon Valley Bank and Signature Bank owned billions of dollars in seemingly safe Treasury bonds and other rate-paying bonds. low interest.

Over the past year, as the Federal Reserve has steadily raised its benchmark interest rate, yields on longer-term Treasury bonds and other bonds have risen. That, in turn, reduced the value of the lowest-yielding Treasuries held by banks.

As a result, the banks were unable to raise enough cash from the sale of their Treasuries to pay the many depositors who were trying to withdraw their money from the banks. It was the equivalent of a classic bank run.

The Fed’s lending programs, particularly the new facility it unveiled Sunday, allow financial institutions to post bonds as collateral and borrow against them, rather than having to sell them.

For its new credit line, the Fed said it has received $15.9 billion in collateral, more than the $11.9 billion it has lent. Banks sometimes provide the Fed guarantee before borrowing. That suggests additional lending is underway.

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