Fed Crisis Lending Programs Benefit Banks

As the industry copes with a serious crisis of confidence and liquidity, according to the Federal Reserve report released last Thursday, financial institutions have taken billions of dollars in short-term loans from the Fed this week.

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It has been reported that a number of banks are taking advantage of the Bank Term Funding Program, which was launched by the Fed on Sunday, to borrow $11.9 billion in cash. As part of that facility, banks are able to take out one-year loans to invest in higher-quality collateral in exchange for favorable terms in return for the loans.

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The majority of banks chose to go with the more traditional route, borrowing money from the Fed through the discount window under slightly less favorable terms, for a total of nearly $153 billion over the course of the year. With the discount window, the loan term can be as short as 90 days, while with the BTFP, you can borrow for a period of one year. There was however an air of ease over the discount window at the beginning of the year, which made it more attractive for borrowers who needed money to operate.

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Additionally, there was a noticeable increase in the number of bridge loans offered, which were also made over a short period of time, totaling $142.8 billion, primarily geared toward taking care of the financial obligations of now-shuttered institutions.

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Data like these come just days after regulators shut down Silicon Valley Bank and Signature Bank, two of the region's most favored banking institutions.

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The Federal Deposit Insurance Corp. stepped in to guarantee money deposited by customers whose excess deposits exceeded the $250,000 guarantee as a precaution to prevent them from losing their money.

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By the end of the programs, the Fed's balance sheet grew by about $297 billion, which means that the total on the balance sheet increased significantly.