Silicon Valley Bank’s sudden collapse and seizure by the FDIC on March 10 sent shockwaves through the financial markets and eroded confidence in other banks. While a thorough analysis shows U.S. banks to be solvent overall, the concern about banks has spread globally. The challenge of analyzing bank safety is that a severe loss of confidence can actually cause an otherwise functioning financial institution to collapse. Thus, it is crucial to monitor the health of the banks with as high-frequency data as possible.
The most accessible and frequent data is bank stock prices. Bank stocks have been particularly hard hit, with the KBW Bank index down about 22% year-to-date. The relatively good news is that bank prices have remained around the crisis lows and have not plunged further. In addition, the broad market has rebounded, which signals less concern about a financial crisis infecting other sectors. Unfortunately, stock prices are very fickle and can reflect emotion rather than facts in the short term. Aside from the government money market mutual funds asset flows, all the following bank data come from the Federal Reserve’s H.4.1 and H.8 weekly reports, released on Thursday and Friday, respectively.
A straightforward way to see the severe stress in the U.S. banking system is the magnitude of bank borrowings from the Federal Reserve via the discount window. Borrowing from the discount window is generally avoided by banks, but the facility can provide emergency liquidity. While the amount borrowed from the discount window has declined from the highs, it remains only slightly below the highest level registered during the Global Financial Crisis.
However, just looking at the discount window understates the support currently provided to the U.S. banking system. Following the collapse of Silicon Valley Bank, the Federal Reserve announced a new facility to help banks meet withdrawal requests from depositors and restore confidence. The Bank Term Funding Program (BTFP) allows banks to borrow up the face value of any government bonds held in the bank’s portfolio at a very reasonable rate. The Paycheck Protection Program (PPP) facility was created in 2020 to provide support during the pandemic. The other credit is the support of the bridge banks, operated by the Federal Deposit Insurance Corporation (FDIC) until they can be sold or liquidated.
