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The lender of last resort

Data on bank loans made by the Fed

The Federal Reserve System serves as a “lender of last resort” for insured financial institutions in the US by providing liquidity to commercial banks, thrift institutions, credit unions, or US branches and agencies of foreign banks. The liquidity provided by the Fed takes the form of loans, which are collateralized and have historically been paid back in full, on time, and with interest. The amount and types of these loans have changed recently.

The FRED graph above shows the dollar amount of each of the six types of loans the Fed currently makes available to depository institutions:

  • The first three series (Primary Credit in blue, Secondary Credit in red, and Seasonal Credit in green) show the value of loans offered through the discount window. This lending program provides depository institutions with ready access to funding and has been in operation since 1914.
  • The fourth series (the purple area) is the Payroll Protection Program Liquidity Facility. This was a term, or temporary, program created during the COVID-19 pandemic to bolster the Small Business Administration’s Paycheck Protection Program (PPP). It provided loans to small businesses so that they could keep their workers on the payroll. This lending program was terminated on July 30, 2021.
  • The fifth series (the teal area) is the Bank Term Funding Program. This is a recently established temporary program to ensure the liquidity of bank deposits. It is described here and is set to expire on March 11, 2024.
  • The sixth series (the orange area) adds up all the other credit extensions, which include loans that were made available to depository institutions established by the Federal Deposit Insurance Corporation (FDIC). As described by the Board of Governors, the Federal Reserve Banks’ loans to these depository institutions are secured by collateral and the FDIC provides repayment guarantees. See footnote 7 of the H.4.1 BOG data release.

The purpose of those loans is to ensure the ongoing provision of money and credit to the economy and to ensure banks have the ability to meet the needs of all their depositors. The recent increase in their value reflects financial stress stemming from the supervised closing of Silicon Valley Bank (Santa Clara, California) and Signature Bank (New York, New York). The March 13, 2023, joint statement by the US Treasury, Federal Reserve, and FDIC underscores that taxpayers will bear no potential losses from these loans.

How this graph was created: In FRED, search the alphabetical list of releases for “H.4.1 Factors Affecting Reserve Balances” and select “Table 1. Factors Affecting Reserve Balances of Depository Institutions Wednesday Level.” Select the six data series listed under “Loans” and click “Add to Graph.” Use the “Format” tab to change the graph type to “Area” and the stacking option to “Normal.”

Suggested by Diego Mendez-Carbajo.

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