Banks' appetites for funding through Fed's emergency facility moderate in Q2'23

US banks' appetite for funding through the Federal Reserve's Bank Term Funding Program subsided in the second quarter.

Twenty-one US banks disclosed $14.62 billion in borrowings under the Bank Term Funding Program (BTFP) under various disclosures through Aug. 3, compared to $31.78 billion in borrowings disclosed by 18 banks through May 2. Much of that decline was due to the failure of First Republic Bank, which reported $13.84 billion in BTFP borrowings at March 31, prior to its demise.

The Fed on March 13 established the BTFP as a one-year emergency lending program for US depository institutions in response to the sudden bank failures of Silicon Valley Bank and Signature Bank. Institutions can access additional liquidity by pledging collateral such as US Treasury securities and other debt obligations to the Fed.

Banks' borrowings under the emergency program steadily rose for the most part in the first 12 weeks, but has since stabilized, staying just above $100 billion since June 7. Borrowings under the program totaled $105.68 billion at Aug. 2.

BTFP balances stable yet considerable for some banks

At $4.91 billion, PacWest Bancorp's total BTFP balance remained unchanged from March-end and was also the highest among all banks on the list as of June 30. The bank's BTFP balance accounted for 13.7% of its total liabilities.

Following sharp deposit outflows in the first quarter, PacWest concentrated on right-sizing its balance sheet and managed to bring down its Federal Home Loan Bank (FHLB) borrowings. The company reported a $5.5 billion decline in borrowings in the second quarter, primarily due to the payoff of FHLB-secured advances with the proceeds of the loan sales. However, the bank's cost of borrowings went up 34 basis points largely because of its BTFP borrowings and repurchase agreement being in effect for a full quarter, according to a July 25 earnings release.

PacWest's reverse merger deal with Banc of California Inc. is further expected to bolster the capital and liquidity position of the combined entity.

Other banks that reported no change in quarter-over-quarter BTFP balances include Glacier Bancorp Inc., Western Alliance Bancorp., Equity Bancshares Inc., Northfield Bancorp Inc., Ames National Corp. and Meridian Corp.

At $2.74 billion, Glacier Bancorp's total BTFP balance was the second highest in the group as of June 30. The borrowing accounted for 11.1% of Glacier's total liabilities at the end of the second quarter.

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Banks with uptick in BTFP borrowings

Avidbank Holdings Inc. reported a 138.3% quarterly increase in its BTFP balance, which stood at $224 million as of June 30.

In the second quarter, Eagle Bancorp Inc. borrowed an additional $500 million under BTFP, bringing its total borrowings under the program to $1.3 billion. The company paid down FHLB borrowings by $777 million to reduce borrowings and improve the rate and maturity mix.

"The reason for the swap in borrowings is the BTFP had a one-year term and a rate that was more attractive," said Eagle Bancorp CFO Charles Levingston during the company's second-quarter earnings call.

Southside Bancshares Inc.'s BTFP balance increased 49.3% from the previous quarter to $296.2 million as of June 30. The bank used the amount to reduce its overall funding costs and enhance its interest rate risk position.

Business First Bancshares Inc. and InBankshares Corp were the only banks in the analysis to report a decline in BTFP balances.

Discount window borrowing declines

Discount window borrowing — the Fed's traditional lending facility — surged in the wake of the bank failures in March but has since declined considerably, registering a sharp fall from the first week of May onward.

Discount window borrowing totaled $1.90 billion as of Aug. 2, down from $5.35 billion on May 3 and $73.86 billion on April 26.