Federal Lending to Banks This Week Eclipses 2008 Financial Crisis Peak

Federal Reserve and Interest Rates
The Federal Reserve has a couple of major tools at its disposal it can use to influence the direction of interest rates, and thus, monetary policy, in the United States. Mark Chivers / Robert Harding World Imagery / Getty Images

Key Takeaways

  • Banks borrow $11.9 billion under new Fed program
  • Discount window lending is larger this week than at the peak of the 2008 financial crisis
  • Regulators and economists said lending was critical to avoid a systemic crisis

The Federal Reserve lent more money to banks in the past week than it did at the peak of the 2008 financial crisis.

The Federal Reserve has lent more than $11.9 billion to banks under the emergency Bank Term Funding Program (BTFP) it launched Sunday night to help stave off a banking crisis ignited by the collapse of Silicon Valley Bank. But the program is only a small part of a huge load of federal lending to banks over the past week.

With eased restrictions on the Federal Reserve’s discount window, banks borrowed more than $152 billion, compared with just $4.5 billion from the prior week. Comparatively, weekly discount window lending during the financial crisis peaked at over $110 billion on Oct. 29, 2008. The Federal Reserve report also showed a notable jump in bridge loans, which totaled more than $142 billion for the week ending on March 15.

“This massive use of emergency borrowing confirms that guaranteeing par for all SBV deposits was inevitable to avert a systemic crisis,” said Daniela Gabor, an economics professor at the University of the West of England, Bristol, on Twitter.

Overall, the increased lending added more than $297 billion in assets to the Federal Reserve’s balance sheet.

Federal regulators launched the emergency BTFP on Sunday night after the Federal Deposit Insurance Corp. took control of SVB, which collapsed as customers withdrew funds after the bank announced a $2 billion loss on asset sales.

The program offers a way for qualified institutions to ensure they have funds to meet depositor obligations. On Thursday, U.S. Treasury Secretary Janet Yellen told lawmakers that the emergency program has helped keep the banking system on sound footing. 

The Federal Reserve also made borrowing at the discount window easier, the newly-launched BTFP offered even better terms, including counting collateral assets at “par value,” meaning they are valued at their purchase price, not the current market price. The discount window offers banks short-term loans so they can keep cash on hand. On the other hand, the BTFP offers longer-term one-year loans to banks.

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  2. Federal Reserve, Factors Affecting Reserve Balances, March 9, 2023

  3. FRED, Assets: Liquidity and Credit Facilities: Loans: Primary Credit: Wednesday Level

  4. Twitter. "Daniela Gabor Status."

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