How the FDIC Sourced Crisis-Time Fed Funding Through the Failed Banks of 2023

A novel crisis-time liquidity channel for the FDIC, but potentially costly and risky

A familiar topic for long-time readers of this site, but now with new information and the full article treatment.

“How the FDIC Sourced Crisis-Time Fed Funding Through the Failed Banks of 2023” is out this morning.

The FDIC wanted liquidity in 2023 as relatively large regional banks failed, but it also had to navigate the institutional stigma of drawing on the Deposit Insurance Fund or its credit lines — plus, the debt ceiling...

Two particularly novel things happened:

1) The FDIC freed up collateral encumbered at the discount window by replacing it with an FDIC guarantee as security—keeping many of the Fed loans open.

2) The FDIC used its guarantees to get the bridge banks partially *uncollateralized* loans from the Fed.

The piece is necessarily byzantine, but tries to unpack a novel crisis-time liquidity channel for the FDIC—and where it comes up short.

Full article again is here.

Comments also welcome via email (steven.kelly@yale.edu) and Twitter (@StevenKelly49). View Without Warning in browser here.