26 May 2023

The American central bank (Fed) announced on Thursday March 16 that it had lent nearly 12 billion dollars (11.30 billion euros) to American banks since Sunday. This loan is part of its new system set up following the bankruptcy of Silicon Valley Bank (SVB), to allow banking institutions to honor withdrawal requests from their customers.

The Fed pledged Sunday to lend the necessary funds to banks, in a joint statement with the Treasury Department and the banking regulator, the FDIC. The three authorities had presented a series of measures aimed at reassuring individuals and businesses.

The monetary institution also announced on Thursday that it had lent, through its usual program of very short-term loans, 152 billion dollars to banks during the past week, against barely 5 billion the previous week.

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Finally, 142.8 billion dollars were lent to the two entities created by the American regulators to succeed Silicon Valley Bank (SVB) and Signature Bank, a New York brand closed automatically on Sunday by the American regulator. A third bank, Silvergate, close to the cryptocurrency community, has also closed.

First Republic in the hot seat

Thursday is First Republic, 14e American bank by the size of assets and in the hot seat for several days, which was saved by eleven major American banks. These have pledged to pay a total of 30 billion dollars in deposits. This is the sign, according to them, of their “trust in the banking system” of the country, said a joint press release.

This action was welcomed by the American authorities, the Ministry of the Economy, the Fed and two financial regulators, estimating in a separate press release that it “demonstrates resilience” of the banking system.

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The loan committed by the Fed increased its balance sheet by $297 billion. A balance sheet that it had been reducing since June 2022, after having, during the Covid-19 pandemic, bought securities to flood the market with liquidity and allow it to continue to operate.

This new increase in its balance sheet should weigh in the balance on Tuesday and Wednesday, during the next meeting of the Fed, when it will make the decision to raise its rates again or not. Injecting liquidity into the economy goes against its current main objective, which is to curb inflation.

Read also: Fall of Silicon Valley Bank: lessons from a bank failure

The World with AFP

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