Fed bank lending high after Silicon Valley Bank, Signature Bank bankruptcies

Emergency lending to banks rose to a new all-time high in the week through Wednesday, surpassing previous highs from the 2008 financial crisis.

Why it matters: The details came in a weekly Federal Reserve report released Thursday that is sure to draw more attention to what it could reveal about tensions in the banking system following the failures of Silicon Valley Bank and Signature Bank.

By the numbers: As of Wednesday, banks had $153 billion in loans on the “discount window,” a longstanding tool through which the Fed provides cash to banks in need of liquidity by lending against solid collateral.

• The previous record for discounted lending was $111 billion in 2008. It also reached $51 billion in the early days of the pandemic.
• Banks also had $12 billion in credit from the Bank Term Funding Program, announced Sunday night, to make bank loans available on highly favorable terms. The report does not mention which (or how many) banks have tapped the facility and will not do so for another year.
• The Fed also provided $143 billion to support the FDIC’s guarantee for all depositors in the bankrupt Silicon Valley Bank and Signature Bank.

Between the lines: Banks seeking access to borrowing through the contingency facility can pledge long-term securities such as government bonds at their original value so that they can borrow against them even if those assets have declined in volume.

• The total value of the pledged securities was about $16.9 billion on Wednesday — higher than the value of the loan, suggesting that banks have not yet borrowed as much as their collateral will allow.

it comes down to: The report sheds light on banks’ demand for short-term cash in the early days of the fallout from the Silicon Valley Bank crisis. Further reports will be looked at for more evidence on how banks are doing.

• Also on Thursday, a group of major banks including JPMorgan, Bank of America and Citigroup said they would inject $30 billion into First Republic Bank, another West Coast regional lender that has been an emerging focus of widespread fears of financial contagion.