Banks renew appetite to tap Fed’s emergency loans

By Yasin Ebrahm

Investing.com — Bank borrowing from the Federal Reserve’s discount window and new lending program ticked up last week, pointing to lingering liquidity constraints.

In the week ended Apr. 19, banks borrowed an average of $69.93 billion each night, down from $67.6B from a week earlier, according to new Fed data released Thursday.

Borrowing from the Fed’s Bank Term Funding Program, the new emergency lending program launched following the collapse of Silicon Valley Bank – climbed to $73.98B from $73.49B in the prior week.

The uptick in borrowing pushed borrowings from the Fed’s emerging lending programs to $143.9B from $139.5B last week, though some economist downplayed any signal of renewed stressed in the banking system. 

“The small increase in loans out to banks is likely insignificant,” Jefferies said in a recent, though cautioned that “banks are far from being out of the woods and many will struggle to operate profitably if they are funding themselves through these Fed facilities.”

Still, the Fed balance sheet assets fell $21.5B in the week ended April 19, to $8.593 trillion, driven by “the mid-month maturity UST SOMA rolloffs, small declines in MBS holdings, and another step down in foreign repo,” Jefferies added.

The renewed appetite to tap the central bank’s lending program comes as Federal Reserve officials continued to talk up further rate hikes despite conceding that tighter lending standards could help the central bank in its fight against inflation. 

Tighter access to credit “would work in the same direction as tighter monetary policy,” Federal Reserve Bank of Cleveland President Loretta Mester said Thursday. “So we will need to continue to assess the magnitude and duration of these effects on credit conditions to help us calibrate the appropriate path of monetary policy going forward. This is the prudent thing to do.”

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