What Happened on the Fed's Balance Sheet? Would a discount window be enough?

Yesterday's data on the change in the balance sheet of the US central bank heated up the discussion in social media. Printers that do brrrrr, QE, giveaway money and helicopter money have reappeared. So let's see what happened.

Emergency liquidity from the FED

Banks have requested a record amount of emergency liquidity from the Federal Reserve in recent days, Reuters reported. collapse of the Silicon Valley Bank and Signature Bank, which resulted in a change in the size of the balance sheet, which is different from QT. The common understanding is that QE is an increase in the balance sheet and QT is a decrease. By contrast, the Fed is running QT (at least for now), expanding its balance sheet.

On Wednesday, banks took $152,9 billion from the traditional facility Fed, known as the discount window, while drawing in $11,9 billion in loans from the newly created Fed Term Loan Program (BTFP). The spike in discount window lending surpassed the previous record of $112 billion set in the fall of 2008, during the most acute phase of the financial crisis.

Additionally, $140 billion went through other funds provided to new bridge banks for Silicon Valley Bank and Signature Bank established by the Federal Deposit Insurance Corp. This caused the central bank's balance sheet to increase by about $300 billion in total over the past week, Reuters concludes.

A discount window would suffice

What was surprising was that there was so little demand for money from BTFPand so much from the discount window. The record number of loans in the discount window was somewhat unexpected, as many analysts polled by Reuters thought banks would gravitate towards the new lending facility. But it's also a matter of time, as companies may have gone to the discount window first, a way to raise liquidity that they know well. Some speculated that, over time, that money could be transferred from the discount window to the new instrument.

However, some felt that the increase in loans in the discount window was positive in itself. For a long time, banks have avoided this instrument, fearing that using it may be a signal to others on the market that they are in trouble. The Fed has tried to dispel that stigma, with uncertain success. Now there is no such problem. What will be most important now is the scale of operation of the above programs in the coming weeks.