US banking stresses seem to be . . . easing?

The US banking system isn’t fine yet, but it does seem to be stabilising and perhaps even healing a smidgen, judging by the usage of various Fed lending facilities.

The Fed said yesterday evening that borrowing from the Bank Term Funding Facility jumped by $41.7bn to $53.7bn, but borrowing from its classic discount window decreased by a similar amount, leaving overall usage of these Fed facilities roughly steady at $164bn.

Importantly, the trouble spots also don’t appear to be spreading. As JPMorgan notes:

Encouragingly, given public disclosures from First Republic Bank and PacWest over the past week, these institutions appear to account for the majority of the aggregate borrowing at these facilities.

Another positive sign is that debt issuance by the Federal Home Loan Banks — by now widely known as the lenders of next-to-last resort — has slowed sharply over the past week.

That’s largely due to the shift into Fed facilities, but is another hint of stabilisation and slowing deposit outflows, JPMorgan’s Jay Barry and Kabir Caprihan argue.

We’ll get more (albeit lagging) information on the deposit situation later today, when the Fed drops its H. 8 report on the assets and liabilities of the US commercial banking industry.

Overall deposits dropped by $54bn in the week through March 8, and today’s report will show what happened in the week through March 15. Another deposit decline is inevitable, the question is how steep it is and whether there are any signs that outflows are slowing.

On that front, whatever the authorities may do might actually be useless. As Alex pointed out earlier this week, there is a massive gulf between the interest that banks pay and what money market funds now offer, which are now inevitably sucking money out of banks.

Here’s the latest MMF flow data from EPFR. Cumulative inflows this year have now hit almost $680bn this year, after another $143bn of inflows in the week to March 22.

This makes us think the Fed facilities will continue to see some chunky usage, even if the turbulence of the past month abates.