’s failure, less than half of U.S. banks have established borrowing capacity by pledging collateral at the Federal Reserve’s emergency lending facility, according to Fed data released on Friday.
. The total value of collateral pledged by banks rose to $2.63 trillion, from $1.94 trillion a year earlier, as deposit-taking institutions beefed up their capacity to take out a discount window loan if needed. Credit unions also increased their total pledged collateral, to $130 billion from $118 billion.
Through the discount window, healthy banks can borrow cash in a pinch – not as a bailout funded by taxpayer money, but on the back of banks’ own good, but often less-than-liquid, collateral. Borrowing from the Fed’s discount window can sound “like the bank is throwing in the towel, and is desperate for liquidity … if the community finds out about it then it can cause stress,” said Independent Community Bankers of America senior regulatory counsel Chris Cole.
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