The banking industry in the United States is supposedly experiencing severe financial effects. This accusation has its roots in the recent industry disruption caused by the failure of important banks like Silicon Valley Bank. According to JPMorgan Chase & Co., the Federal Reserve decided to ease the country’s ongoing liquidity problem because the other banks are currently in danger.
The emergency loan program of FED, according to JPMorgan Chase & Co., is anticipated to inject $2 trillion worth of capital into the US banking sector. The ongoing liquidity problems might be temporarily resolved in light of the aforementioned cash.
The Government’s Emergency Loan Program
This month, US officials started investigating a plan that reportedly started as a result of the failure of three lenders. The stated program scheme aimed to give these organizations a second source of liquidity. Additionally, it intends to quickly reduce the requirement for selling securities during a crisis.
According to JPMorgan analysts, the aforementioned Bank Term Funding Program should be able to contribute to the banking system’s reserves in sufficient amounts to decrease reserve shortages.
Beneficiaries of the Program
Large banks’ use of the emergency loan programs has been questioned, according to reports, and it has also been stated that the initiative’s maximum utilization is predicted to be close to $2 trillion. According to reports, US banks own bonds worth this amount, excluding the top five financial institutions.
Strategists led by Nikolaos Panigirtzoglou have asserted that the usage or number of beneficiaries of the FED’s Bank Term Financing Program is expected to be significant in an effort to further elaborate the current topic. But, it is important to remember that the biggest banks control a large portion of the $3 trillion in reserves that remain in the US financial system.
Due to FED’s quantitative tightening and the rising interest rates that caused people to migrate from bank deposits to money-market funds, JPMorgan strategists claim that the current tighter liquidity is the result of these factors. The two-year Treasury bond yield has decreased by more than 60 basis points this week as a result of rumors that the Fed won’t raise interest rates next week in an effort to stabilize the banking sector.