© Reuters. BofA sees further signs of stabilization in the banking industry
By Sam Boughedda
BofA believes there have been further signs of stabilization in the banking sector after the Federal Reserve released its balance sheet data for the week ending March 29.
The data provides the third look at take-up rates in the Fed’s backstop facilities. BofA analysts revealed that the Fed’s balance sheet declined by $28.1 billion, driven by a $10.4B drop in securities held outright and an $11.5B decline in loans, representing the first decline in Fed emergency lending in several weeks.
“Last week, we took comfort from the fact that the majority of loan growth on the Fed’s balance sheet appeared to go to lending to bridge banks established by the FDIC to resolve SVB and Signature Bank. This week we take further comfort from the decline in usage of the Fed’s emergency lending facilities,” wrote the analysts.
The analysts added that on the assets side, loans extended by the Fed fell by $11.5B to $342.7B.
“Of this amount, lending through the discount window (primary credit to depository institutions) fell by $22.1bn to $88.2bn,” they wrote.
“Offsetting a portion of the decline in discount window lending was increased take-up in the Bank Term Funding Program (BTFP) by $10.7bn. Outstandings in that facility now amount to $64.4bn,” the analysts added. “As was the case last week, we think it most likely that some recycling of discount window and BTFP activity may be due to one or more commercial banks optimizing the collateral they pledge to the Fed.”
“BTFP borrowing terms are more attractive if proper collateral is available. Given the speed at which events moved in recent weeks, we would not be surprised if it took time for banks to optimize the collateral they pledge to the Fed.”