Federal bank lending this week eclipsed the peak of the 2008 financial crisis
- Banks are borrowing $11.9 billion under the Fed’s new program
- Break-even loans are higher this week than at the height of the 2008 financial crisis
- Regulators and economists said lending was critical to avoiding a systemic crisis
The Federal Reserve lent more money to banks last week than it did at the height of the financial crisis in 2008.
The Federal Reserve has lent more than $11.9 billion to banks under the Bank Emergency Term Funding Program (BTFP), which launched Sunday night to help prevent a banking crisis triggered by the collapse of Silicon Valley Bank. But the program is just a small part of the massive amount of federal lending to banks this past week.
With restrictions on the Federal Reserve’s discount window eased, banks borrowed more than $152 billion, compared with just $4.5 billion the previous week. By comparison, weekly discount borrowing during the financial crisis peaked at over $110 billion on October 29, 2008. The Federal Reserve report also showed a notable jump in bridge loans, which totaled more than $142 billion for the week ending March 15.
“This massive use of emergency loans confirms that guaranteeing a nominal value for all SBV deposits is inevitable to prevent a systemic crisis,” Daniela Gabor, professor of economics at the University of the West of England, Bristol, said on Twitter.
Overall, increased lending added more than $297 billion in assets to the Federal Reserve’s balance sheet.
Federal regulators launched the emergency BTFP on Sunday night after the Federal Deposit Insurance Corporation took control of SVB, which collapsed as customers withdrew funds after the bank announced a $2 billion loss on asset sales.
The program offers a way for qualified institutions to ensure that they have the funds to meet depositor obligations. On Thursday, US Treasury Secretary Janet Yellen told lawmakers that the emergency program had helped keep the banking system healthy.
The Federal Reserve also made it easier to borrow in the discount window, the newly created BTFP offered even better terms, including reporting collateralized assets at “par value,” meaning they are valued at their purchase price rather than the current market price . The discount window offers banks short-term loans so they can hold cash. On the other hand, BTFP offers longer-term one-year loans to banks.