Banks disclose borrowings from new emergency Fed facility amid liquidity crunch

Several US banks disclosed use of the Federal Reserve's new funding facility that was created in the wake of concerns about industry liquidity.

Eighteen US banks cumulatively borrowed $31.78 billion under the Fed's Bank Term Funding Program (BTFP), per various disclosures through May 2. For some, the program helped bolster liquidity after deposit runoffs in the first quarter while others used it to boost liquidity in case they need the cash in the future or to pay down higher-cost borrowings.

The BTFP was established following the failures of Silicon Valley Bank and Signature Bank that led to concerns about banks' liquidity. The program is intended to ease potential concerns by providing additional liquidity against banks' securities so they do not have to sell those quickly in times of stress.

Bolstering liquidity after deposit outflows

Several banks at the center of the recent industry turmoil reported billions in outstanding BTFP borrowings.

First Republic Bank had the highest total BTFP borrowings as of March 31, prior to its failure and subsequent acquisition by JPMorgan Chase & Co.'s unit JPMorgan Chase Bank NA on May 1. The bank's BTFP balance of $13.84 billion accounted for 6.4% of its total liabilities as of March 31.

Following deposit outflows after the recent bank collapses, PacWest Bancorp strengthened its liquidity position with $4.91 billion in borrowings under the BTFP as of March 31. The bank previously disclosed $2.1 billion in borrowing under the BTFP as of March 20. Its BTFP balance at March 31 accounted for 11.8% of its total liabilities, the highest percentage among banks that disclosed BTFP borrowings.

PacWest Bancorp also reported an increase in Federal Home Loan Bank (FHLB) secured advances of $4.2 billion. As the company works to reposition and shrink its balance sheet, it prefers to bring down FHLB borrowings before BTFP balances.

"We'd start with FHLB. The Bank Term Funding Program is a fantastic program that the Federal Reserve put in place, very impressed with that approach. It's very favorable. And so it makes sense for us to utilize the lower rate you can see there and the flexibility there and the ability to use par over time, but we'll also bring that down over time as well as we deleverage the balance sheet," CFO Kevin Thompson said on the company's first-quarter earnings call.

Western Alliance Bancorp., which also experienced deposit outflows following the failures of Silicon Valley Bank and Signature Bank, reported $1.3 billion in BTFP borrowings.

Shoring up liquidity for future use

Some banks accessed the facility to boost liquidity in case cash needs arise in the future.

East West Bancorp Inc. had the third-highest BTFP borrowing in the group as of March 31, totaling $4.5 billion. On the company's first-quarter earnings call, CFO Irene Oh said East West will hold onto those balances in order to be conservative.

"We'll evaluate that with our need for cash, what happens with deposits," she said. "We're just looking at that as really kind of a rainy day. We'll evaluate that over the course of the year."

Hope Bancorp Inc., which had $1.4 billion in BTFP borrowings, also plans to hold onto the balances.

"For the near term, we expect to hold an elevated amount of cash compared with historical levels because usage of term Bank Term Funding Program is not a drag on our profitability," Chairman, President and CEO Kevin Kim said during the company's first-quarter earnings call.

Some banks, such as Glacier Bancorp Inc., used the BTFP to pay down other high-cost borrowings, including FHLB advances.

BTFP, discount window borrowing trends

Total BTFP borrowings have increased nearly every week since the program was created on March 13, indicative of rising concerns around industry liquidity.

BTFP balances totaled $81.33 billion as of April 26, up more than $7 billion from $73.98 billion in the week prior.

Shortly after the failures of Silicon Valley Bank and Signature Bank, discount window borrowing — the Fed's traditional lending facility — shot up to a record high of $152.85 billion. That borrowing declined for four consecutive weeks but has since ticked up again, rising for the past two consecutive weeks.

Discount window borrowing stood at $73.86 billion on April 26 from $69.93 billion in the previous week.