The Fed’s Balance Sheet and Lending Programs
The supportive presence of the Fed and other central banks to stabilize global financial markets has remained in place for nearly two years. The balance sheet of the Fed was $1.99 trillion as of July 9, 2009, down from the recent peak of $2.198 trillion at the end of April 2009. This is good news because the aggressive posture of the Fed is being withdrawn gradually as financial markets thaw. The end is not here yet, with a long road ahead before the Fed commences applying the monetary brakes.
Borrowing at the “Discount Window” is down to $34.520 million as of July 8, which is about 31% of the peak in October 2008 ($110.737 billion was made available to banking institutions, see chart 2). On this front, the progress implies that the banking system is not in a dire need of funds as it was by late-2008. Additional mending of balance sheets will be necessary in the months ahead.
The birth of several programs widened the reach of the Fed’s function as a “lender of last resort” in the past two years. Tracking the usage of these programs holds the key to whether the financial market conditions have entered a period of stability. Primary dealers quit borrowing from the Fed as of May 20, 2009. Here is a program that died a natural death justifying the need to have initiated this program temporarily to prevent a meltdown in the financial sector.
Only 25% of the Term Asset-Backed Securities Loan Facility (TALF) of $1 trillion has been utilized as of July 8, 2009. The cumulative amount of funding through this program between March 25 and July 8 is $227.802 billion (see chart 4).
The Commercial Paper Funding Facility’s need is diminishing (see chart 5).
The necessity of the Term Auction Facility has also waned in significance as seen in chart 6 but the program continues to be necessary (see chart 6). A description of the Fed’s different programs can be accessed at FRB: Information Regarding Recent Federal Reserve Actions.
The minutes of the June FOMC meeting will be published on July 15. The exit strategy of the Fed will not become clear until economic data point to a convincing pickup in economic growth.
