Banks once again reduced their borrowings from two Federal Reserve backstop lending facilities in the most recent week, a sign the financial stresses that emerged following a string of bank collapses last month may be stabilizing.
US institutions had a combined $148.7 billion in outstanding borrowings in the week through April 5, compared with $152.6 billion the previous week.
Emergency borrowing retreated for the third straight week, suggesting liquidity demand continues to ease following the second-largest bank failure in US history. Over the past few weeks, banks appear to have shifted a larger share of their borrowing out of the discount window, the Fed’s traditional backstop lending program, and into the new emergency lending facility it launched last month to help stem contagion in the bank sector.
“Big picture, it looks like the banking stress is contained and things are very gradually normalizing,” Michael Feroli, chief US economist at JPMorgan Chase & Co., said in an email note Thursday.
Data showed $69.7 billion in outstanding borrowing from the discount window, compared with $88.2 billion the previous week and a record $152.9 billion reached last month.
The discount window is the Fed’s oldest liquidity backstop for banks. Loans can be extended for 90 days and banks can post a broad range of collateral.
Outstanding borrowings from the Bank Term Funding Program stood at $79 billion compared with $64.4 billion the previous week. The Fed opened the BTFP on March 12 after it declared emergency conditions following the collapse of California’s Silicon Valley Bank and New York’s Signature Bank.
Credit can be extended for one year under the program and collateral guidelines are tighter.
Bank borrowing from the Fed is still much higher than is typical, suggesting stress remains high but is not worsening, analysts said.
The data offer “some additional evidence that banks have weathered the storm of deposit runs for now,” Jefferies economist Thomas Simons said in a note. “However, they are far from being out of the woods and many will struggle to operate profitably if they are funding themselves through these Fed facilities.”
Fed loans to bridge banks established by the Federal Deposit Insurance Corp. to resolve SVB and Signature Bank fell to $174.6 billion in the week through April 5, from $180.1 billion the previous week.
Foreign central banks also tapped the Fed’s Foreign and International Monetary Authorities repurchase agreement facility for $40 billion in the week through April 5, down from $55 billion.
The decrease again in the use of the Fed’s foreign repurchase agreement facility signaled that strains in the banking sector continue to wane. It’s come down after reaching an all-time high of $60 billion in the week ended March 22.
Speaking earlier Thursday, St. Louis Fed President James Bullard said the central bank’s efforts to support banks are working. He downplayed the risks of a credit crunch tipping the US economy into recession.
“Financial stress seems to be abated, at least for now,” Bullard told reporters Thursday after speaking at an event in Little Rock, Arkansas. “And so it’s a good moment to continue to fight inflation and try to get on that disinflationary path.”
--With assistance from Liz Capo McCormick.
This article was provided by Bloomberg News.