The Federal Reserve’s Emergency Loan Program, or BTFP, could inject up to $2 trillion into the US banking system and alleviate the liquidity crisis, according to JPMorgan.
“Utilization of the Fed’s emergency bank financing program is likely to be significant,” strategists led by Nikolaos Panegirtzoglou wrote in London in a note to clients on Wednesday. While the largest banks are unlikely to benefit from the program, the maximum contingency use is close to $2 trillion, the nominal amount of bonds held by US banks outside the Big Five, they said.
This comes after the US authorities put in place the program earlier this month with the collapse of 3 lenders with the aim of preventing the sale of US bonds in order to obtain financing.
Meanwhile, the two-year Treasury yields fell by more than 60 basis points this week amid speculation that the Federal Reserve will skip raising interest rates next week as it seeks to stabilize the banking sector, according to Bloomberg, which was seen by Al Arabiya.net. “.
JPMorgan strategists wrote that while there are still $3 trillion in reserves in the US banking system, a large proportion of them are held by the largest banks. They said the dwindling liquidity was due to the Fed’s quantitative tightening as well as higher interest rates which led to a shift to money market money from bank deposits.
JPMorgan strategists said the Bank Term Funding Program should be able to inject enough reserves into the banking system to reduce the scarcity of reserves and reverse the tightening that has occurred over the past year.
The central bank said in a statement this week that the Fed will report use of the software on an aggregate basis each week when it releases data on its balance sheet.