The utilization of a newly established Federal Reserve facility, in response to the collapse of SVB Financial, is beginning to gain momentum after several months of minimal activity.

The Bank Term Funding Program: Helping Banks Weather Losses

The Bank Term Funding Program offers banks the opportunity to borrow for up to one year by providing collateral at par value, even if they are currently trading at a loss. Since the autumn season, this program has consistently experienced week-over-week growth. Interestingly, this surge in usage aligns with recent spikes in the Secured Overnight Financing Rate.

Banks Struggling with Cash Shortages

Moses Sternstein, an insightful writer who shares his observations through his Random Walk blog, suggests that there is significant evidence that banks are facing acute cash shortages. As a result, they are compelled to pay higher prices to secure the funds they require. Sternstein speculates that this issue is primarily related to increased borrowing from the Treasury Department, rather than being a lagged effect of the Federal Reserve's previous interest-rate hike campaign.

Deteriorating Liquidity and Tighter Funding

Ryan Plantz from Nomura, an expert in the field, adds that there may also be a seasonal impact on this situation. Plantz comments on the spikes in the SOFR rate and highlights signs of declining liquidity and tighter funding as the year approaches its end.

Regional Banks Impress with Recent Surge

Despite the challenges faced by the banking industry, an exchange-traded fund (ETF) that tracks regional banks, the SPDR S&P Regional Banking ETF KRE, has experienced a notable surge in the past month. It has risen by an impressive 17% recently, although it remains down by 11% year-to-date.

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