(Bloomberg) — The Federal Reserve’s campaign to tighten financial conditions has resulted in U.S. banks significantly increasing borrowing at the central bank’s discount window, which is often the source of funds. final aid.
Most read from Bloomberg
The balance at the discount window rose to $10.1 billion on November 30, the highest level since June 2020, from $9.1 billion a week earlier. Combined with the increase in wholesale loans by US banks, this shows that banks are losing deposits to higher-yielding alternatives, according to a report by Investor Services. by Moody.
Moody’s analysts Jill Cetina, David Fanger and Donald Robertson write: “Discounting window credits are intended to be used by banks to cover short-term capital shortfalls and are not intended to be source-based. long-term capital for banks”. “The ongoing and increasing use of the discount window over the past few months could point to deeper funding weaknesses in some corners of the banking sector.”
The discount window is “often seen as a last resort,” so borrowing more shows that some banks “have faced more significant short-term liquidity pressure” as a result of the Fed’s overall rate hikes. 3.75 percentage points since March, Moody’s said.
The rate hike has led to relatively higher yields on alternatives to bank deposits such as money market funds and Treasury bills. At the same time, the Fed’s balance sheet reduction measures are reducing the amount of bank reserves in the financial system.
In the past, banks have been reluctant to use the discount window for fear investors see it as a sign of operational weakness, a stigma the Fed has been trying to remove.
(Updated discount window data in second paragraph, chart)
Most read from Bloomberg Businessweek
© 2022 Bloomberg LP
