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Banks in the U.S. borrowed more money last week following the collapse of two departments by the U.S. Federal Reserve. In the week to March 15, nearly 165 billion US dollars, about 155 billion euros, were borrowed from the central bank, mainly by small and regional banks.
AP
March 17, 2023
Banks used that money to strengthen their financial position and to keep enough cash on hand in case customers demanded their balances from the bank. The move follows the bank’s exit from California at Silicon Valley Bank (SVB), which has been plagued by financial problems at the bank. The bank was shut down by California authorities last Friday.
US authorities also intervened in industry peer Signature Bank on Sunday by shutting down crypto bank from New York. Customers of both the banks got all their balances back. Generally, customer deposits up to $250,000 in US banks are withdrawn.
Discount counter
The US$153 billion was lent through the central bank’s so-called traditional discount counter, where banks can always borrow extra money for emergencies on favorable terms. It was a new record. It was only $4.6 billion in the previous week. The previous record of $111 billion was in 2008, the year of the global financial crisis.
In addition to the SVP and Signature Bank interventions, the central bank announced last Sunday that all banks will receive additional cash. The move is meant to prevent banks from being forced to sell government bonds at a loss if customers demand their balances. Almost US$12 billion was lent to banks through that additional window, bringing the total to US$165 billion.
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