Federal Reserve Alert! 'Primary Credit' (the principal safety valve for ensuring adequate liquidity in the banking system) jumped to $10.09B for the week of November 30th

Federal Reserve Alert! 'Primary Credit' (the principal safety valve for ensuring adequate liquidity in the banking system) jumped to $10.09B for the week of November 30th, a change of 10.34% from last week, 3.10K% from one year ago at an average growth rate of 41.11K%. It is growing...

https://ycharts.com/indicators/us_loans_to_depository_institutions__primary_credit

Happy Thursday afternoon r/superstonk! Neighborhood jellyfish here and I would like to discuss, 'Primary Credit'--the principal safety valve for ensuring adequate liquidity in the banking system that has banks borrowing cash from the Fed at 4% to the tune of $10.09 billion this past week a change of 10.34% from last week, 3.10K% from one year ago, and an average growth rate of 41.11K%.

Overview

Federal Reserve lending to depository institutions (the โ€œdiscount windowโ€) plays an important role in supporting the liquidity and stability of the banking system and the effective implementation of monetary policy. By providing ready access to funding, the discount window helps depository institutions manage their liquidity risks efficiently and avoid actions that have negative consequences for their customers, such as withdrawing credit during times of market stress. Thus, the discount window supports the smooth flow of credit to households and businesses. Providing liquidity in this way is one of the original purposes of the Federal Reserve System and other central banks around the world.

The "Primary Credit" program is the principal safety valve for ensuring adequate liquidity in the banking system. Primary credit is priced relative to the FOMCโ€™s target range for the federal funds rate and is normally granted on a โ€œno-questions-asked,โ€ minimally administered basis. There are no restrictions on borrowersโ€™ use of primary credit.
https://www.frbdiscountwindow.org/Pages/General-Information/Primary-and-Secondary-Lending-Programs.aspx 

Here are some examples of common borrowing situations:

  • Tight money markets or undue market volatility
  • Preventing an overnight overdraft
  • Meeting a need for funding, including a short-term liquidity demand that may arise from unexpected deposit withdrawals or a spike in loan demand
The introduction of the primary credit program in 2003 marked a fundamental shift - from administration to pricing - in the Federal Reserve's approach to discount window lending. Notably, eligible depository institutions may obtain primary credit without exhausting or even seeking funds from alternative sources. Minimal administration of and restrictions on the use of primary credit makes it a reliable funding source. Being prepared to borrow primary credit enhances an institution's liquidity.

Why is this so interesting?

A lot of banks have a ton of cash right now! We see this with the current reserves at $3.056 Trillion.

What are reserves? They are when the banks put cash on deposit at the Fed and the Fed pays them interest--currently 3.9%. Why won't they lend to each other?

https://ycharts.com/indicators/us_total_reserves

So back to Primary Credit, I wonder which institution(s) are seeking โ€œno-questions-askedโ€ "no restrictions on borrowersโ€™ use of primary credit." to the tune of $10.09 billion this past week a change of 10.34% from last week, 3.10K% from one year ago, and an average growth rate of 41.11K%?

TL:DRS: big players are trying to get as much liquidity backstop as possible and are increasing their borrowing from the Fed, happily paying 4% to borrow billions. Why? Is a certain stock about to boom and your collateral looks like trash right now?

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