Bank Liquidity Stress Lingers in Key Overnight Funding Market
- Gap between 75th and 99th percentiles in fed funds is widening
- Data suggests small banks still turning to overnight borrowing
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Borrowing activity in the federal funds market is signaling that stress in the US banking system hasn’t fully gone away.
Although a decline in total volume suggests the overall need for excess cash has lessened, the spread between what borrowers at the highest percentile of the daily fed funds distribution have to pay and those below is at its widest since September 2019. That’s a sign that some smaller institutions are still having to pay more to borrow cash, according to Bank of America strategists Mark Cabana and Katie Craig.