Asset Reduction Is Normalizing After Bank Scare (1/3)

Federal Reserve balance sheet reduction is showing increasing signs of getting back to "normal" after the banking turmoil earlier in the year (as we note in our latest Fed Balance Sheet Tracker).

• Total Fed assets fell by $91B in the 4 weeks to Weds Aug 2, a figure which comprised just $15B less emergency lending to banks - the remainder was made up of asset runoff as part of the ongoing quantitative tightening program, including $45B in Tsys, $9B in Bills, and $20B in MBS/Agencies.
• Total assets at $8.2T are now $750B below the peak, with the SOMA portfolio now down $960B since the quantitative tightening program started in June 2022.
• While the overall balance sheet’s reduction has not equalled SOMA’s, the residual difference – emergency lending to banks – continues to shrink in size and importance. Overall extraordinary liquidity/lending facilities fell to $289B over the past month, with the Bank Term Funding Program (BTFP) facility $3.7B larger at a new record $105.7B, but discount window usage fading further (down $1.5B to $1.9B - vs a peak size of $153B). “Other credit extensions” (Fed lending to FDIC bridge bank entities for resolution purposes) continued to retrace, by nearly $17B to $148B, vs $228B at the peak.
• In other words, there are continued signs of a slow but sure unwinding of stress in the banking sector.

Source: Federal Reserve, MNI