Banks take advantage of central bank crisis loan schemes

Signed outside Signature Bank Branch in New York, USA on Monday, March 13, 2023.

Stephanie Keith | Bloomberg | Good pictures

Financial institutions took billions in short-term loans from the Federal Reserve this week as the industry grapples with a severe crisis of confidence and liquidity, the central bank said Thursday.

Banks looking for cash infusions borrowed $11.9 billion from the Bank Term Fund program, using tools the central bank released on Sunday. Under the facility, banks can get a one-year loan on favorable terms in exchange for high-quality collateral.

Most banks took a more traditional route, using the central bank’s discount window under slightly less favorable terms, borrowing at $148.2 billion per week. The discount window offers loans up to 90 days, while the BTFP period is for one year. However, the central bank relaxed the conditions in the discount window to make it more attractive to borrowers who need operational funding.

There was a big jump in bridge loans, made over a short period of time, totaling $142.8 billion, primarily to now-shuttered companies so they could meet their obligations to depositors and other expenses.

The data comes days after regulators shut down Silicon Valley Bank and Signature Bank, two firms favored by the high-tech community.

Fearing that customers who exceeded the $250,000 Federal Deposit Insurance Corporation guarantee would lose their money, regulators offered to withdraw all deposits.

The plans boosted the total amount on the Fed’s balance sheet by about $297 billion.

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