TD Securities Weigh In On Bank Usage Of Fed Liquidity Provisions

TD Securities note that “banks accessed the Fed for significant funding last week. As of 3/15, Discount Window (DW) usage surged to $153bn and the Bank Term Funding Program (BTFP) showed $12bn of usage. This should be good news for markets since the Fed liquidity backstops seem to be working during a period of deposit flight (see here for our note on the SVB fallout and here on the Sunday announcement). Capital remains an open question. We make a few observations:”

• “FRC borrowed $20-109bn from the Fed, so FRC was a large share of the DW usage over the last week.”
• “BTFP began only on Monday, so banks may have taken a while to set up for it. The avg weekly balance was only $2bn.”
• “BTFP only takes Treasury/agencies as collateral while DW takes a wide variety of collateral as assets. Banks facing liquidity needs may have had more DW eligible collateral. As of 3/1, bank holdings of Treasuries/MBS totaled $4.3tn while other assets were $6tn.”
• “Reserves in the banking system grew by $250bn this week, despite ongoing QT. This is due to loans to banks and other credit extensions to the FDIC for SVB and SBNY. Liquidity support to banks is more than offsetting QT.”
• “FHLB has been a significant source of liquidity for banks recently. The surge in FHLB issuance suggests some stigma in borrowing from the Fed.”