Banks, over 350 billion in liquidity to stop the bank run -

Banks, over 350 billion in liquidity to stop the bank run -

In a few days, the banking system, shaken by the bank run triggered overseas by the crash of Silicon Valley Bank (Svb) and Signature Bank of New York, causing a storm on the markets that also overwhelmed Credit Suisse, which was flooded by 350 billion from part of the central banks in the United States and Europe.

US banks borrowed $164.8 billion from the Federal Reservewhich made extra liquidity available to stem the repercussions of the crisis on the markets: $152.85 billion was raised through the so-called discount window in the week through March 15, compared to 4.58 billion the previous week. Another 11.9 billion was taken from the Bank Term Funding Programthe new mechanism announced on Sunday 12 March by the Fed among the emergency measures after the collapse of the SVB, which allows banks to offer state guarantees (collateral) at par in exchange for a one-year loan.

In turn, the Fdic, the federal agency that insures deposits, lent $142.8 billion to guarantee all deposits of the SVB and Signature Bank, even beyond the threshold of 250,000 uninsured dollars.

The discount window is a monetary policy toola, which allows eligible institutions to borrow money from the central bank, usually on a short-term basis, to address temporary liquidity shortages. The term originates from the practice of sending a bank representative to the counter of the central bank, considered the reserve bank, therefore the payer of last resort, when a lender needed to borrow money to deal with a crisis.

To understand the nervousness shaking investors and savers, a comparison is useful: In 2008, during the Great Financial Crisis, peak lending through the Federal Reserve's discount window was $111 billion.

THEin Europe the Swiss National Bankthe Swiss central bank, after the collapse of Credit Suisse on the Stock Exchange, made available to the historic Zurich institute 50 billion francs, about 54 billion dollars.

Then there are the private interventions developed by the US banking system itself With an action orchestrated behind the scenes by the Secretary of the Treasury, Janet Yellen, and Jamie Dimon, president and CEO of Jp Morgan since 2005, one of the veterans of the American banking system, survived the great financial crisis of 2008, theCalifornia's First Republic received $30 billion in deposits from major banks on Thursday to strengthen its financial position, after the stock market crash and the bank run triggered by the crash of Svb.

JpMorgan Chase, Bank of America, Citigroup and Wells Fargo will each deposit 5 billion in First Republic. Goldman Sachs and Morgan Stanely will each deposit $2.5 billion, while BNY Mellon, PNC Bank State Street, Truist and Us Bank will each deposit $1 billion.

The big banks take the field because it is in their interest to calm the markets and reassure account holders of the soundness of the system. But the extent of the interventions makes it clear how much fragility there is, induced by more than a decade of zero interest rates. On the one hand, the ultra-accommodative policy by the central banks has favored the search for more profitable yields by increasing risk-taking. On the other hand, the return of inflation, misunderstood as a transitory phenomenon and therefore left to run for too long, has weakened the position of the banks which have invested in the safest assets on paper, government bonds.

The sudden rise in interest rates, which rose to 4.5% in the United States and 3.5% in the euro area, devalued the value of securities on banks' balance sheets. one of the causes that caused the Silicon Valley Bank to fail, forced to sell assets quickly and at a loss to recover liquidity in the face of the withdrawal (accelerated by social media) of deposits by customers, too concentrated - another cause of its vulnerability - in a single sector, that of technological start-ups, in a tech industry already in crisis, after the enormous capacity built up in the years of the pandemic.

How much liquidity can the US system guarantee? JpMorgan estimates the maximum level of the new Fed protection tool could reach provide 2 trillion dollars. But if you look only at the amount of uninsured deposits at the six US banks that have the highest ratios of uninsured deposits to total deposits, $460 billion might be enough.

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