Hours: Monday - Friday 8:00 am - 5:00 pm


The great deposit migration and emergency borrowing at the Fed discount window

REAL ECONOMY BLOG | March 17, 2023

Authored by RSM US LLP

The banking crisis has spurred a dramatic flight to safety at all levels of the financial system.

From investors seeking the assurance of money market funds, to depositors shifting their money from smaller banks to systemically important financial institutions, to banks themselves accessing greater liquidity from the Federal Reserve, the move has been nothing less than historic.

In the past week, the Fed’s loans outstanding to the financial system have ballooned to about $318 billion.

In the past week alone, the Federal Reserve’s loans outstanding to the financial system have ballooned to about $318 billion, up from $15 billion a week ago.

While it will be some time before we get an idea on the migration of deposits from small and midsize banks into systemically important financial institutions, retail investors and businesses haven’t been idle.

The Financial Times, citing data from the Investment Company Institute, reported that investors poured roughly $120 billion in cash into money market funds over the past week, with $93 billion moving on Tuesday and Wednesday.

The deposit carousel around the financial system has clearly begun.

Another sign of this profound shift is the dramatic surge in financial institutions’ use of the Federal Reserve’s primary credit lending program, known as the discount window. Between March 9 and Wednesday, there was $152.9 billion in demand for liquidity using the discount window, of which $148.3 billion represented an increase from one week ago, according to Fed data.

Discount window

The prior high for weekly demand was $111 billion posted during the week of Oct. 29, 2008, at the height of the financial crisis.

The Federal Reserve’s Bank Term Funding Program (BTFP), announced on Sunday, received $11.9 billion in demand despite being far more favorable than the terms inside the primary lending facility.

In addition, the Fed has $142.8 billion in loans outstanding to two just-created Federal Deposit Insured Corporation bridge banks.

To put it all in perspective, the Federal Reserve, at the height of the financial crisis, had close to $750 billion in loans outstanding to the financial system. While this crisis is nowhere near the catastrophe of 2008, this recent stress represents a major disruption to the domestic financial system.

The takeaway

The economic implications are clear. The great migration of deposits from regional banks to larger banks and emergency borrowing facilities on the part of those banks will result in tighter credit standards, a reduction in lending, slower growth and higher unemployment.

That is a vivid example of tightening financial conditions, which will also, in the end, reduce inflation.

Such is the cost of a significant financial panic and banking crisis.

Let's Talk!

Call us at (325) 677-6251 or fill out the form below and we'll contact you to discuss your specific situation.

  • Topic Name:
  • Should be Empty:

This article was written by Joseph Brusuelas and originally appeared on 2023-03-17.
2022 RSM US LLP. All rights reserved.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

Condley and Company, LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.

For more information on how Condley and Company can assist you, please call (325) 677-6251.

Share This