Data from the Federal Reserve (the U.S. central bank) revealed that banks sought record amounts of emergency liquidity over the past few days following the collapses of Silicon Valley Bank and Signature Bank, which in turn undermined the central bank’s efforts over recent months to reduce the size of its balance sheet.
As of Wednesday, banks had borrowed $152.9 billion from the discount window of the U.S. Federal Reserve, an unprecedented amount for this traditional facility that serves as a last resort. They also received $11.9 billion in loans from a newly introduced term lending program. Borrowing from the discount window surpassed the previous record of $112 billion set in the fall of 2008 during the worst phase of the financial crisis.
Although the borrowing amounts are significant, some analysts expressed relief regarding the situation, stating that it reduces concerns that recent events could escalate to a level that might lead to a complete economic collapse.
Thomas Simons, a money market economist at Jefferies Investment Bank, noted, "The numbers, as we see them here, are more consistent with the idea that this is just an individual problem for a few banks." He added that government support efforts appear effective and that the amounts disclosed by the Federal Reserve on Thursday indicate that it is not a massive systemic problem.
The increase in emergency lending has halted the contraction of the Federal Reserve's balance sheet and even resulted in significant growth. After peaking at nearly $9 trillion last summer, before the central bank began taking steps to reduce its holdings of Treasury securities and mortgage-backed securities, total assets declined to $8.39 trillion on March 8, before rising to about $8.7 trillion on Wednesday, the highest level since November.
