The numbers: Cash-strapped banks borrowed $139.5 billion in emergency lending from the Federal Reserve in the week ended April 12, down $9.4 billion from the prior week, according to data released by the central bank Thursday. That is down from a peak of $300 billion in mid-March, when Silicon Valley Bank collapsed.
Key details: Banks borrowing from the traditional “discount” window stood at $67.6 billion in the week ended April 12, compared with $69.7 in the prior week.
Bank loans from the new Bank Term Funding Program were $71.8 billion, down from $79 billion in the prior week.
The Fed program is designed to eliminate the damage to the financial system from bank runs. Banks can use that program to get emergency loans to pay any depositors who withdraw money, rather than potentially having to sell securities to raise cash that could cause stress in markets.
Big picture: The declining amount of bank borrowing adds to the sense that the stress on the banking system is easing, or at least stabilizing. But experts said that there remain serious doubts about the health of the banking system going forward, with estimates of over $600 billion in debt that is underwater on their books.
Behind the scenes, the Fed is running a program to shrink its balance sheet after purchasing large amounts of assets from the market to keep long-term interest rates low during the pandemic.
Last week, the Fed’s balance-sheet assets fell $17.8 billion to $8.6 trillion.
While the emergency lending does run counter to this program, Fed officials have said they intend to continue to let maturing securities roll off its balance sheet.
What are they saying? “This confirms that the acute phase of the current banking strains continues to gradually wind down. Of course, the hits to many smaller banks from declines in net interest margins and the increased volatility from their deposit bases will be a much slower-moving process,” said Krishna Guha, vice chairman of Evercore ISI, in a note to clients.
Market reaction: The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.519%
inched higher to 3.45% in trading on Thursday.
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