The Federal Reserve’s loans to banks expanded at a much slower place during the seven days through Wednesday, suggesting that stress in the banking sector may be stabilizing.
Loans made through the Fed’s discount window fell by $12 billion to $105 billion on average, data from the Federal Reserve showed on Thursday. Despite the decline, the level of borrowing through the discount window remains extremely elevated by historical standards and unprecedented outside of a recession.
Normally, the Fed has less than $10 billion in loans to banks outstanding through the discount window, which exists to be a “lender of last resort” to solvent banks that hold good collateral but are facing temporary liquidity crunches. At the height of the financial crisis in 2008, borrowing through the discount window reached $110 billion. In the week following the collapse of Silicon Valley Bank, borrowing reached almost $117 billion.
By Wednesday, borrowing had declined to $88.2 billion, a sign of stabilization.
Borrowing from the Fed’s new Bank Term Funding Program, which was launched in the wake of the failure of Silicon Valley Bank and Signature Bank, increased by $28 billion to $62.6 billion on average. This likely reflects some banks switching from the discount window to the term funding program. The term funding program allows banks pledge securities at face value instead of market value and to borrow up to a year against that collateral.
The Wednesday snapshot total of $64.4 billion was higher than the weekly average, an indication that banks continue to rely heavily upon this facility for liquidity.
The Fed said “other credit extensions” lending inched up to $180.1 billion from the prior week’s $179.8 billion. This is the category that includes the Fed’s loans to support the Federal Deposit Insurance Corp.’s extension of deposit guarantees to all deposits at Silicon Valley Bank and Signature Bank.