It looks like it’s “Groundhog Day” for the financial markets. Banks have made massive use of central bank liquidity assistance in recent days. According to Bloomberg, data released last night by the Federal Reserve show that in the week ended March 15, banks borrowed a total of $164.8 billion from two Federal Reserve backstop facilities. This includes a record $152.85 billion from the discount window, the traditional liquidity reservoir for banks. The previous all-time high of $111 billion was reached during the 2008 financial crisis!
Banks are nervous about too little liquidity, and fill up with cash. The shadow of the next bank runs to come after SVB and CS...
Another indication of liquidity pumping: the Federal Reserve balance sheet rose $297 billion in one week. What does that mean? Statistics from the St. Louis Fed show the entire balance sheet of the Federal Reserve as it evolved from May 2022 to March 15, 2023. (https://www.federalreserve.gov/releases/h41/current/h41.htm )
The balance sheet fell from $8.94 trillion to $8.34 trillion by March 8, 2023 as part of quantitative tightening (QT), so it was a $600 billion decline in 10 months. Now, in the last week, through this Federal Reserve lending to banks, we see the balance sheet rise to $8.639 trillion—an increase of exactly $297 billion in just one week, the largest weekly increase since the coronavirus pandemic.
Economist Veronika Grimm, member of the German Council of Economic Experts, said, “I don’t think we are in a similar situation to 2008,” speaking to Deutschlandfunk radio today. Right, Ms. Grimm: it is worse than 2008….
