Banking stress rises in the US – Bloomberg HT

Concerns about medium-sized banks in the US have escalated again after First Republic Bank announced that it had a more than expected deposit outflow in the first quarter and its stock fell to a record low.

As a result, applications for emergency funding opportunities such as the Fed’s discount window and the Bank Term Funding Program (BTFP), one of the emergency supports introduced after the Silicon Valley Bank and Signature Bank bankruptcies, have increased again in the last two weeks.

The US Federal Reserve funded financial institutions $143.9 billion in the week ending April 19 and $155.2 billion in the week ending April 26, data released on Thursday showed.

According to the Fed’s weekly balance sheet, funding through the discount window, which is the traditional lending program, increased from $69.9 billion in the week of April 19 to $73.9 billion in the week of April 26. BTFP funding was $74 and $81.3 billion, respectively.

Funding through the discount window broke a record with $152.9 billion in March, then declined as bank stress subsided.

What will the Fed do next week?

As a continuation of the US Federal Reserve’s attempts to reduce inflation, which is well above the target, it is expected to raise interest rates above 5 percent with an increase of 25 basis points next week. However, the re-escalation of concerns about the banking sector may complicate this decision.

Policymakers will likely try to assess at next week’s meeting how much of an impact the credit tightening has had on growth.

Priya Misra, Director of Global Interest Strategy at TD Securities, said, “They will check the resilience of the economy, especially in the face of tightening credit conditions. In the minutes, we can tell if some are worried about recovery.”

On Thursday, it was announced that the US growth rate slowed in the first quarter, as weak investment expenditures and the decline in stocks dampened the impact of the increase in consumption expenditures.

So far, the Fed has chosen to respond to financial problems with emergency funding steps and other measures, and to keep monetary policy separate from it. However, according to Misra, this may change if problems in banks begin to have an impact on growth. In the latest situation, Misra expects the Fed to raise two more 25 basis points interest rates and to apply for rate cuts as of December.

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