US considering more federal support for banking industry: report

U.S. financial authorities are considering expanding the line of credit they extended to banks earlier this month to prevent the collapse of First Republic Bank, which had received a $30 billion bailout from a consortium of its own competitors, according to Bloomberg News.

Bloomberg reported over the weekend that the expansion of the Fed’s lending facility is one of several public sector options now under consideration by government officials to further prop up the teetering banking industry.

The Fed can’t change its policy in response to the matters pertaining to individual banks. Rather, it has to craft policies that cater to the banking sector as a whole.

But Bloomberg reports that “the change could be made in a way to ensure that First Republic benefits,” according to “people with knowledge of the situation” cited in the article.

After the initial collapses of Silicon Valley Bank (SVB) and Signature Bank, the Federal Deposit Insurance Corporation (FDIC) reimbursed depositors of those banks with money from the FDIC’s deposit insurance fund, which had around $128 billion in it.

The Federal Reserve also set up a line of credit for banks insured by an additional $25 billion from the Treasury. Assets at SVB at the time of its collapse totaled more than $200 billion and were been sold off to North Carolina-based First Citizens Bank over the week, the FDIC said.

“With approval of the Treasury Secretary, the Department of the Treasury will make available up to $25 billion from the Exchange Stabilization Fund as a backstop for the [lending facility]. The Federal Reserve does not anticipate that it will be necessary to draw on these backstop funds,” the Fed wrote in a March 12 statement.

Despite receiving a $30 billion deposit from banks including JPMorgan and Citigroup to keep it from failing, First Republic Bank has lost around 90 percent of its stock value since the first week of March. It’s currently trading around $14 a share, down from more than $140 in February.

Officials from Fed and Treasury Department declined to comment to The Hill about further measures under consideration to prop up the banking sector.

Last week in Congress, Treasury Secretary Janet Yellen sent mixed messages about how far the government would go to rescue the banking sector.

“These are tools we could use again for an institution of any size if we judge that its failure would pose a contagion risk,” she said during a subcommittee hearing of the House Appropriations Committee.

But she also said she was not considering a policy of “blanket insurance” for U.S. deposits, despite the FDIC’s reimbursement of wealthy depositors at SVB above the $250,000 insurance limit.

The Fed’s balance sheet has exploded since the beginning of March when the Fed’s program of quantitative tightening in response to persistently high inflation was still on course to take money out of the economy, paired with rising interest rates.

Between March 8 and 22, the U.S. central bank added more than $391 billion in assets in the form of loans and securities provided to banks. That money is supposed to be for keeping banks solvent as opposed to giving out new loans and stimulating the economy.

“The balance sheet expansion is really temporary lending to banks to meet those special liquidity demands created by the recent tensions. It’s not intended to directly alter the stance of monetary policy,” Fed Chair Jerome Powell said last week.