Federal Home Loan Banks Raising $64 Billion Sparks Speculation Of Surge In Deposit Runs

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by Tyler Durden
Monday, Mar 13, 2023 - 04:55 PM

When it comes to emergency Fed bailout facilities, the Discount Window is always the first in line - which is also why its use is heavily frowned upon by bank management teams, as any report or rumor bank X is using it can promptly lead to a deposit flight cascade and investors panic about the bank's financial status (traditionally, real-time Discount Window usage is secret however on Wall Street this kind of news always leaks within hours).

But while usage of the Discount Window may be widely stigmatized, especially after the Lehman crash period, banks are far less concerned about using the Fed's “lender of next-to-last resort" funding source: the Federal Home Loan Banks, a system of 11 regional banks that is a Depression-era backstop used by private banks for short-term funding without the stigma of taking money from the Discount Window.

As such, this morning's news from Bloomberg that The Federal Home Loan Banks are seeking to raise about $64 billion through the sale of short-term notes, has sparked a frenzy of speculation first from us...