The Fed added $300B on their balance sheet in the past week in the wake of the SVB debacle, undoing four months of quantitative tightening. Banks turned to the Federal Reserve’s discount window to borrow $152.85 billion, tapped the Fed’s new funding program for $11.94 billion. The two banks that failed last week borrowed another $142.8 billion. In total, ~$300B was added to the Fed’s balance sheet.
In other words, $300B of cash is being injected into our economy to help stabilize the US banking system. Technically that’s quantitative easing. But I assume the liquidity will flow to regional banks to meet depositors’ withdrawal requests. Then the depositors will take the money either to big banks or to buy treasury bills/money market funds. If I understand this correctly, most of the cash will end up making a round trip and flowing back to the government, i.e. the Fed’s reverse repo facility or the US Treasury.
I do think the three bank failures we witnessed last week are causing panic among banks, investors and businesses. Banks will hold tight to their liquidity and become super conservative underwriting new loans. Investors will avoid taking excessive risks in the current environment. Businesses will have trouble raising money to grow and many will cut their expenses and run as lean as possible. The Fed’s policy of keep raising rates until something breaks is finally working but it’s unclear if the inflation will come down as quickly as the Fed has hoped.
Will be interesting to see how long these funds stay in there. Maybe this is where SIVB assets got parked "not at tax payer expense". Could also be from FRC.
I will say while the net effect is the same, the fundamentals are different here. QE is the fed buying low risk assets at auction in time intervals. Discount window and and the new facility are emergency cash needs by banks. One puts constant tailwind on asset inflation, the other stops volatile asset deflation (fire sale).