Federal Reserve Discount Window Tapped by Banks for Largest Amount Ever

The troubled banking system continues to struggle to regain its footing following the collapse of several banks that found themselves upside down after a rapid rise in interest rates. The banks holding long-duration assets saw their value tank adding stress to the overall financial system.

Moody’s downgraded the entire banking sector in the past week.

Moody’s has issued a comment on the Federal Reserve’s weekly H.4.1 data release that showed a dramatic increase in borrowing from the Fed’s discount window to $153 billion from $5 billion last Wednesday. Moody’s states this is the largest amount of Federal Reserve discount window borrowing on record. The previous record was during the great recession in 2008, when banks accessed $110 billion.

Moody’s stated that”

“…the release showed that as of 15 March, banks had taken $12 billion in loans from the Fed’s new Bank Term Funding Program (BTFP) facility designed help ease funding strains related to banks’ holdings of long-dated government securities. Separately, despite volatility in European markets, the Federal Reserve reported limited activity on its dollar swap lines, which totaled $472 million as of 15 March, little changed from last week’s $411 million. The other significant contributors to growth in Fed lending besides primary credit and the BTFP facility were $143 billion in Fed loans to the FDIC’s newly established bridge banks.”

The new BTFP facility created this week offers loans to financial instituions of up to one year to depository institutions pledging US Treasuries, agency debt and agency mortgage-backed securities, and other qualifying assets owned prior to the BTFP facility’s announcement date

In recent days, the size of the Fed’s balance sheet grew $300 billion to $8.7 trillion as of 15 March.

This data reflects the ongoing strain on banks driven by weakening depositor confidence. At the same time, Moody’s said the emergency support is NOT indicative of an elevated risk of “imminent failure.”



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