Fed lending to banks still high, but eases in latest week

By Michael S. Derby

(Reuters) – Federal Reserve lending to banks eased further in the latest week, signaling that while the absolute levels of emergency credit remain high, financial sector strains which started a month ago are continuing to ease.

As of Wednesday, Fed loans to banks via its discount window facility stood at $67.6 billion, from $69.7 billion on April 5, Fed data released on Thursday showed. Loans via the newly created Bank Term Funding Program moved to $71.8 billion, from the prior week’s $79 billion, while “other credit” tied to the Federal Deposit Insurance Corporation’s efforts to deal with failed banks ticked down to $172.6 billion, from $174.6 billion on April 5.

When the loans from the three programs are added together, credit extended to banks by the Fed stood at $312 billion on Wednesday, down from $323.3 billion on April 5. While the absolute amount of lending remains high and outstrips emergency lending at the peak of the financial crisis in 2008, total lending has been moving lower since the $343.7 billion peak on March 22.

The moved down in lending “is consistent with ongoing improvement in bank liquidity, especially as falling rates have likely decreased unrealized losses on bank portfolios,” TD Securities analysts said. “We will be watching Friday’s bank deposit data for further confirmation that outflows have subsided, though we expect pressure on banks to persist in coming months.”

The Fed also said in its data that borrowing from its facility for central banks and other foreign official accounts eased a bit further and stood at $30 billion on Wednesday, from $40 billion the week before. The Fed does not reveal which foreign institutions are using its Foreign and International Monetary Authorities Repo Facility, but borrowing in recent weeks has been tied to the Swiss National Bank.

The total size of the Fed’s balance sheet moved to $8.664 trillion, from April 5’s $8.682 trillion.

(Reporting by Michael S. Derby; Editing by Andrea Ricci)