US banks borrow a record amount of extra money from the Federal Reserve

Banks in the US turned en masse to the US Federal Reserve last week to borrow additional funds in the wake of the collapse of two of their peers in the sector. In the week ending March 15, a record amount of nearly 165 billion US dollars, about 155 billion euros, was borrowed from the central bank, mainly by smaller and regional banks.

Banks used this money to strengthen their financial position and to have enough cash on hand if customers were to claim their balances from the bank. The move followed the bank’s management of Silicon Valley Bank (SVB), which stemmed from the bank’s financial problems from California. This bank was closed down by the California authorities last Friday.

US authorities also intervened in the industrial peer-to-peer bank Signature on Sunday by shutting down the cryptocurrency bank from New York. Customers of both banks recovered all their balances. Usually, customers’ deposits with US banks amounting to $250,000 are guaranteed to be returned.

About $153 billion was lent through the Fed’s traditional so-called discount counter, where banks can always knock on the door to borrow additional money for emergencies on favorable terms. This was a new record. The previous week, that was only about $4.6 billion. The previous record of $111 billion was set in 2008, the year of the global financial crisis.

In addition to the SVB and Signature Bank interventions, the Fed also announced last Sunday that all banks will have additional access to cash. The measure was intended to prevent banks from being forced to sell government bonds at a loss if customers demanded their balances. Nearly US$12 billion was lent to banks through that additional window, bringing the total amount to US$165 billion.