Fed Backstops the Banks

The Fed has the banks' backsides covered. The Fed can't insure deposits, but it can guarantee that the banks have access to plenty of liquidity to meet deposit outflows without having to sell securities from their bond portfolios at a loss as happened to Silicon Valley Bank (SVB), forcing it into receivership on March 10. The banks are required to put up bonds as collateral for their Fed loans, but the bonds are priced at par rather than at depressed market values.

In the past two weeks through the March 22 week, banks' borrowings jumped by $570 billion to$2.52 trillion (chart). Borrowings by large and small domestically chartered banks rose $266 billion and $300 billion over the latest two weeks!