Banks trim borrowing from the Fed for second straight week in wake of SVB failure

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The numbers: Banks reduced overall borrowing from the Federal Reserve for the second straight week in the aftermath of the failure of Silicon Valley Bank.

They drew $153 billion in credit in the week ended March 29, based on the Fed’s weekly H.4.1. survey.

Banks borrowed $164 billion in the prior week and an initial $165 billion in the first week after the failure of SVB.

The decline in borrowing suggests stress on the U.S. financial system might be easing after a spasm following the failure of several regional banks.

Key details: Banks borrowed $88.2 billion from the Fed using the traditional “discount window.”

That’s down from $110.2 billion last week and $153 billion two weeks ago.

The Fed lent an additional $64.4 billion from a new Bank Term Funding Program set up to prevent further bank runs and failures. That’s up about $10 billion from the prior week.

Banks can get loans from the Fed to pay any depositors who withdraw money instead of having to sell securities that are underwater.

The Fed’s total balance sheet shrank $27.8 billion to $8.71 trillion. In addition to less lending by banks, there was a downtick in central bank repurchase agreements.

Big picture: Wall Street
is watching the Fed’s weekly balance-sheet data to determine if the stress on banks from the recent failures is clearing up.

A shaky banking system could hurt the economy by making it harder for businesses and consumers to obtain loans. So far there’s little evidence of that happening, but credit requirements for borrowers have been tightening since last year.

What are they saying? “We were concerned about last week’s H.4.1 showing huge demand for dollar liquidity through emergency/unusual channels. However, after the dust has settled a little bit this week with the banks, today’s report offers some assurance that, at a minimum, things haven’t gotten any worse,” said Thomas Simons, economist at Jefferies, in a note to clients.

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