Borrowing from key Fed lending facilities cools a bit in latest week

By Michael S. Derby

NEW YORK (Reuters) – Federal Reserve lending to financial institutions eased modestly in the latest week, central bank data showed on Thursday, in a sign that financial sector woes that began last month may be beginning to settle down.

Total lending to the three main programs aimed at bolstering bank liquidity stood at $323.3 billion as of Wednesday, down from $332.7 billion on March 29.

At the start of March, before banking sector problems emerged, total Fed liquidity lending to banks was just shy of $5 billion. Borrowing over recent weeks has been spurred by the failure of Silicon Valley bank, amid trouble at other insitutions, which in turn drove the Fed to provide levels of market support that outstripped what was seen in 2008 during the height of the financial crisis.

While lending is down, it remains high overall. Even so, J.P. Morgan economist Michael Feroli said “big picture it looks like the banking stress is contained and things are very gradually normalizing.”

In its weekly report, the Fed said banks sought $69.7 billion from its discount window lending facility as of Wednesday, down from $88.2 billion on March 29. The discount window is the central banks main tool to extended liquidity to deposit-taking banks.

Lending via the Bank Term Funding Program stood at $79 billion as of Wednesday, versus $64.4 billion the prior Wednesday. Credit tied to the Federal Deposit Insurance Corporations work to wind down failed banks stood at $174.6 billion on Wednesday, down from $180.1 billion on March 29.

The liquidity taken by banks and other factors caused the overall size of the Fed‘s balance sheet to move to $8.682 trillion, down from March 29’s $8.756 trillion.

(Reporting by Michael S. Derby; editing by Jonathan Oatis and Stephen Coates)