Making Sense

For the week ended 29 March 2023, Federal Reserve released the report on Factors affecting reserve balances. This report has gained particular significance post the collapse of SVB Bank. The report offers insights into the extent of liquidity stress in the system by providing data on facility usage by depository institutions. There is USD 11 bn reduction reduction in loan facility driven by a fall of USD 22 bn through the primary credit discount window and USD 11 bn rise from the Bank Term Funding program, a facility announced in the aftermath of banking crisis to allow institutions to borrow upto a period of 1 year on collateral which will be valued at par.  To just give a sense, on the rates for the facility usage ( as on 31 Mar 2023) Primary Credit 5% Secondary Credit 5.50% Seasonal Credit 4.80%  Bank Term Funding program 4.85% While the borrowing from the discount window / BTFP and other credit extensions is elevated, it has shown signs of stabilization as has other a...

  Data released on  reserves held by depository institutions that were borrowed from the Federal Reserve through the Discount Window (DW), Paycheck Protection Program (PPP) Liquidity Facility (PPPLF), Bank Term Funding Program (BTFP) announced on Mar 12 and other lending facilities show a sharp surge in use of Federal Reserve Facilities. Refer to earlier article. In the press conference, Fed Chair Jerome had explained the Credit Extensions as Fed is lending to the bridge bank and it’s a loan that’s 100 percent guaranteed by the FDIC so there’s no risk in it for us which I had highlighted in the earlier note too. There is a + USD 42 bn increment in the BTFP and Other Credit extensions has risen by USD 37 Bn. Also the foreign repo facility saw an uptake of USD 60 bn.

Data released on  reserves held by depository institutions that were borrowed from the Federal Reserve through the Discount Window (DW), Paycheck Protection Program (PPP) Liquidity Facility (PPPLF), Bank Term Funding Program (BTFP) announced on Mar 12 and other lending facilities show a sharp surge in use of Federal Reserve Facilities. To put things in perspective, the Primary credit discount window as on 8th March was availed to the extent of USD 4.6 bn which surged to USD 153 bn post the SVB Crisis. If you look at the chart number 1 below, on the left hand side of the chart , you would observe the peak usage before the collapse of SVB Bank to the tune of USD 111 bn as on Oct 29, 2008.  The PPPLF is a covid era measure with nothing home to write about. The BTFP facility which became operational on 13th March 2023 saw usage to the tune of USD 12 bn  (Chart 2) . Other credit extensions rose from zero as on 08th March 2023 to USD 143 bn in the aftermath of the crisis  ...