For the first time since 2020, the Fed is rushing in to backstop the US banking system. Several major regional banks are struggling in the wake of last week’s collapse of Silicon Valley Bank and Signature Bank, and the distressed remains of those failed institutions are still being managed by the Federal Deposit Insurance Corporation (FDIC). The Fed committed to protecting banks and the financial system throughout the crisis, and it has backed up those promises with strong material actions—supporting the FDIC, opening up a new bank lending facility last weekend, easing the conditions of banks’ emergency credit lines, and promising liquidity to any depository institution in distress.
As of Wednesday, they had also backed up those promises with more than $300B in fresh loans for American banks—more than double the amount of direct credit created at the height of the pandemic in early 2020. So far, that has worked to stem the crisis—no more banks have fallen in the week since the FDIC, Fed, and Treasury got together to respond to the crisis—but many banking institutions still remain at risk. So will the Fed’s $300B emergency response—and the range of new policies they’ve enacted—be enough to stop the crisis?
The Federal Reserve had initiated more than $300B in secured direct lending to the banking system as of Wednesday—more than at any time since the Global Financial Crisis—in an effort to stem the fallout of Silicon Valley Bank (SVB) and Signature Bank’s failure. More than $11.9B in lending came from the Bank Term Funding Program (BTFP)—the newly created facility that lets banks pledge government-backed securities at par for loans of up to one year. However, the majority of the Fed’s lending—$295B—came from the discount window, the Fed’s collateralized direct lending facility historically reserved for providing emergency liquidity to banks. The Fed lent $142B to the FDIC-owned bridge banks for SVB and Signature and another $152B to private banks via the discount window. One private bank likely makes up the bulk of that $152B in private borrowing— First Republic, who put out a statement saying their discount window borrowings had varied from $20B to $109B since Silicon Valley Bank’s collapse.