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New Fed Bank Backstop Has Scope to Inject as Much as $2 Trillion

  • Facility unlikely to be used by largest banks: JPM strategists
  • Wrightson ICAP sees window, new facility use rising by $100b
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Yellen: Liquidity Played Important Role in Bank Failures
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Market observers are on alert to find out just how much extra funding the Federal Reserve’s new bank backstop program will ultimately add into the system, with analysts at JPMorgan Chase & Co. positing that it could inject anywhere up to $2 trillion in liquidity.

That’s their maximum estimate. The analysts’ prediction based on the amount of uninsured deposits at six US banks that have the highest ratio of uninsured deposits over total deposits is closer to $460 billion. That’s a smaller amount, but still enormous compared to historic usage of the so-called discount window, another Fed facility that is often seen to carry a stigma and has historically involved banks taking a haircut on the amount borrowed relative to collateral.