Banks’ Borrowing From Fed Suggests Temporary Liquidity Pressure

U.S. banks’ borrowing from the Federal Reserve reportedly signals some liquidity pressure.

On Monday (Sept. 15), banks borrowed $1.5 billion from the Federal Reserve’s Standing Repo Facility, Reuters reported.

As Monday is the deadline for quarterly corporate tax payments, the borrowing points to some “tightness in meeting funding obligations,” the report said.

The report also said the Secured Overnight Financing Rate rose to 4.42% on Friday (Sept. 12), which was the highest in two months and higher than the Interest on Reserve Balances rate of 4.40%.

This suggests “exceptional demand” for secured funding against Treasuries, the report said.

However, the liquidity pressure should be only temporary and caused by Monday’s two deadlines, the report said, citing its interviews with analysts.

In other recent news from the regulator, the Federal Reserve said Aug. 29 that it plans to average this year’s stress test results with those from 2024 and update the individual capital requirements for large banks.

With this proposed rule, the Fed aims to reduce year-over-year volatility from the stress test when calculating these capital requirements, it said in a press release.

“As the Board continues to fulfill its commitment to reducing year-over-year volatility and increasing transparency of the stress test, the individual capital requirements announced today represent a period of transition,” Vice Chair for Supervision Michelle W. Bowman said in the release. “Finalizing the rule proposed in April would be an important next step to reducing year-over-year volatility in bank capital requirements.”

On Tuesday (Sept. 9), the Fed announced that it, together with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, will hold a hybrid public outreach meeting on Oct. 30 as part of their review of regulations.

“The outreach meeting is an opportunity for interested stakeholders to present their views on the regulatory categories listed in any of the four Federal Register notices: Applications and Reporting; Powers and Activities; International Operations; Consumer Protection; Directors, Officers and Employees; Money Laundering; Rules of Procedure; Safety and Soundness; Securities; Banking Operations; Capital; and the Community Reinvestment Act,” the Fed said in a Sept. 9 press release.