Topline
Banks worried about liquidity in the wake of Silicon Valley Bank’s collapse took out a combined $164.8 billion in loans from the Federal Reserve over the past week, according to Fed statistics released Thursday, topping a record set during the 2008 financial crisis.
A sign hangs at Silicon Valley Banks headquarters in Santa Clara, California, on March 10, 2023. … [+]
Key Facts
Banks took out $152.85 billion in loans using the Fed’s discount window—the central bank’s traditional backstop that provides loans for up to 90 days.
The staggering amount was a dramatic increase from the week prior, when banks took $4.58 billion in loans, according to the Wall Street Journal.
The borrowing shattered the previous weekly high of $111 billion recorded during the 2008 financial crisis, according to a Bloomberg analysis of Federal Reserve data.
Banks also took out another $11.9 billion in loans through the Fed’s new Bank Term Funding Program, which started Sunday and offers year-long loan terms.
The Federal Reserve did not identify the banks that took out loans, but the nation’s largest banks have given no indication they have any solvency issues, while President Joe Biden insisted this week that “Americans can have confidence that the banking system is safe.”
Larger banks are tightly regulated and control an immense amount of accounts that vary in deposits, while regional banks like SVB often rely on high-balance accounts—making them especially susceptible to bank runs if customers sense trouble.
Key Background
SVB’s rapid collapse last week after a flood of customers attempted to pull their money out of the bank has roiled the financial industry, especially lesser-known regional banks similar to SVB. New York-based Signature Bank failed Sunday after a bank run, while stocks for regional banks have crashed almost across-the-board recently. San Francisco-based First Republic Bank appeared to be spiraling toward the next collapse Thursday before financial giants JPMorgan Chase, Bank of America, Citigroup and Wells Fargo each made $5 billion deposits, in a move Federal Reserve Chairman Jerome Powell said showed the “resilience of the banking system.” The rescue plan reversed what had been a deep selloff of First Republic’s stock, which rose around 10% Thursday to close at $34.27 but remains down more than 75% from its price earlier this month.
What To Watch For
An SVB shareholder filed a class-action lawsuit against the bank and its former top executives Monday, claiming SVB knew it was “particularly susceptible” to a bank run due to rising interest rates and “artificially” inflated its stock price by issuing statements claiming the rate hikes were not cause for concern. SVB failed after it announced it sold securities at a $1.8 billion loss and planned to sell additional company stock to raise capital, signaling liquidity problems, prompting venture capital funds to urge clients to pull money out of the bank. Those clients were able to recoup all of their money this week after the Treasury Department lifted its traditional $250,000 cap on insuring bank accounts. SVB is also facing investigations from the Justice Department and Securities and Exchange Commission into its collapse, according to the Wall Street Journal.
Further Reading
What To Know About Silicon Valley Bank’s Collapse—The Biggest Bank Failure Since 2008 (Forbes)
What Happened To Signature Bank? The Latest Bank Failure Marks Third Largest In History (Forbes)
First Republic Stock Crashes But Bounces Back As Big Banks Unveil $30 Billion Rescue Plan (Forbes)
SVB Shareholder Files First Lawsuit Against Bank Executives Over Historic Collapse (Forbes)
SEC And DOJ Will Investigate Silicon Valley Bank’s Collapse, Report Says (Forbes)
Source: https://www.forbes.com/sites/nicholasreimann/2023/03/16/banks-rush-to-borrow-record-breaking-165-billion-from-fed-after-svb-failure/