Banks reduce borrowing from Fed's backstop facilities

In the most recent week, banks have reduced their borrowings from two Federal Reserve backstop lending facilities, a sign that liquidity demand may be stabilizing.

The US institutions had a combined $152.6 billion in outstanding borrowings in the week through March 29 compared to $163.9 billion the previous week.

After the dust settled with the banks a bit this week, today s report offers some assurance that things haven't gotten worse, according to Jefferies economists Thomas Simons and Aneta Markowska.

The data showed $88.2 billion in outstanding borrowing from the Fed's traditional backstop lending program, known as the discount window, compared with $110.2 billion the previous week and $152.9 billion in a period of bank distress earlier this month.

The dollar is the Fed's oldest backstop for banks. Banks can post a wide range of collateral and loans can be extended for 90 days.

The Bank Term Funding Program has outstanding borrowings of $64.4 billion compared to $53.7 billion the previous week. The BTFP was opened March 12 after the Fed declared emergency conditions following the collapse of California's Silicon Valley Bank and New York's Signature Bank.

Credit can be extended for a year under the program and the collateral guidelines are tighter.

The reduction in usage indicates a slightly improving bank liquidity picture, although the situation remains uncertain, according to TD Securities strategists Priya Misra and Molly McGown, who pointed out earlier data for the period through March 15 showing declines in bank deposits in the first half of the month. Bank deposits fell by $98.4 billion to $17.5 trillion in the week ending March 15, according to numbers released March 24 by the Fed, with the next batch of similar data due Friday.

In the week through March 29th, the Fed loans to bridge banks established by the Federal Deposit Insurance Corp. to resolve SVB and Signature Bank went up slightly to $180.1 billion from $179.8 the previous week.

Foreign central banks tapped the Foreign and International Monetary Authorities repurchase agreement facility for $55 billion in the week through March 29, data shows. That was after it reached an all-time high of $60 billion the previous week.