JPMorgan: Fed’s Emergency Loan May Bring $2T Into US Banking System
The U.S. banking sector is facing a significant liquidity crisis, as the collapse of major banks like Silicon Valley Bank has disrupted the industry. The Federal Reserve had to intervene to ease the situation by launching an emergency loan program expected to bring in $2 trillion worth of funds into the U.S. banking system, according to JPMorgan Chase & Co.
JUST IN: 🇺🇸 $2 trillion could be injected into the US banking system by the Federal Reserve's emergency loan program, JPMorgan says.
— Watcher.Guru (@WatcherGuru) March 16, 2023
Providing Liquidity Boost
The Bank Term Funding Program was established earlier this month after the failure of three lenders. It aims to provide additional liquidity to institutions and eliminate the need to sell securities during a crisis. This program is expected to add enough reserves to the banking system to lessen reserve shortages.
Although it is doubtful that large banks will use the program, it is expected to be utilized up to $2 trillion, which is on par with the value of bonds owned by U.S. banks, except for the five largest institutions. JPMorgan strategists believe that the usage of the Fed’s Bank Term Funding Program is likely to be significant.
Top banks have a sizable share of the $3 trillion in reserves still present in the U.S. financial system. The JPMorgan strategists attribute the tighter liquidity to the Fed’s quantitative tightening and the rate rises that led to a switch from bank deposits to money-market funds.
Awaiting Fed Decision on Interest Rates
Speculations that the Fed may forego raising interest rates next week to stabilize the banking industry have caused the two-year Treasury bond yield to fall by more than 60 basis points this week.
The U.S. banking sector is now eagerly waiting for the Fed’s decision on interest rates. If the rates are raised, it could worsen the liquidity crisis in the banking industry. Therefore, the Fed is under tremendous pressure to keep the interest rates stable, which could help minimize capital shortfalls and stabilize the banking sector.
