Lending activity increased around the shiny Fed counter

According to economist Edin Mojacic, if banks start borrowing money from the so-called Federal Reserve discount window, this is a sign that something is going on. “When they come to lend there, the names of the banks are one of the Fed’s best-kept secrets.”

Essentially, the Federal Reserve is a bank where banks can borrow money, Mojácic explains. And within that system you have all kinds of loan counters. And if that discount window was an actual counter, it would have been hidden away from the main entrance. Somewhere in an alley. Banks only come there if they really can’t get money from anywhere else in the financial markets.

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And because there’s a stigma around that counter, it’s interesting to note when it’s busy, according to Mogajek. “You can see that as the first sign that something is going on,” he continues. When banks borrow money, the names of those banks are one of the Fed’s best kept secrets. In normal times, no one actually goes there, but if something exceptional happens in the world, there is sponsorship.

crises

Mojáczyk cites October 2008 as an example. At that time people borrowed about $100 billion a week. Or how about March 2020, at the start of the pandemic, when it was $50 billion a week. But usually no one comes.

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Remarkably, this situation has changed again recently. “For the last few weeks, the lending has been a little over $10 billion a week, so we have numbers coming in again – wearing hoodies and sunglasses. It’s very little compared to March 2020, but you shouldn’t look at that. You have to compare it to normal time, and after That’s not going to come in. So the fact that there are banks now lending money there is great.

Foreigner

Mujagic goes a step further and calls it weird. He continues, “For months, perhaps even years, I have been hearing from all quarters that there is anything but a lack of money in the United States.” “So if you can’t fund yourself as a bank in the normal way, it could be a harbinger of trouble in the making.”

It can be a harbinger, he emphasizes, rather than a direct one. Because we don’t know. But I’m going to keep an eye on this before the start of 2023, because if that lending counter activity picks up, you can think slowly but surely concluding that there could be something fundamental going on in the US banking landscape.