As of 26 April, the U.S. Federal Reserve had made $155.2 billion in emergency loans to banks as the industry continued to wobble following the simultaneous collapse of Signature and Silicon Valley banks in mid-March.
The loans totaled $143.9 billion at the end of the previous week.
The loans were made through two programs intended to stabilize the banking industry as depositors migrated their funds to bigger banks they believe to be more stable or to money market funds paying higher returns.
One program is the Fed’s long-standing “discount window.” The loans made there rose from $69.9 billion to $73.9 billion.
The second venue, called the Bank Term Funding Program, saw demand jump from $74 billion to $81.3 billion. It was established on 12 March after the two bank failures sparked turmoil across the financial sector.
The Fed has used the two programs to keep its response to the banking crisis separate from the usual factors weighing on its policy decisions, such as the unemployment and inflation rates.
However, the crisis could now factor into the Fed’s thinking if it threatens the larger economy’s growth, according to Priya Misra, TD Securities’ chief rate strategist.
Fed officials “are going to check the resilience of the economy, especially in the face of tightening credit conditions,” she said.
From the minutes of this week’s meeting, “we might get a sense if some [officials] are getting nervous about the recovery,” Misra added.
The Fed will add a quarter point to its base rate two more times before cutting it in December as the economy slows, she predicted.
TREND FORECAST: The Fed had expected to be able to end its support for the U.S. lending market this year as it closed out its multi-trillion-dollar loan portfolio it built up during the COVID-era lockdown.
No such luck.
Banks will remain dependent on the Fed for as long as the central bank is willing to allow them to.
Once the Fed winds down its emergency Bank Term Funding Program, a new round of bank closures and takeovers will rattle the industry and the broader economy.