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Usage of a new Federal Reserve facility set up in the wake of the collapse of SVB Financial is starting to pick up after months of little change.

The Bank Term Funding Program allows banks to borrow for up to one year by pledging collateral at par even when they’re trading at a loss, and it has seen week-over-week gains since the autumn. What’s more, the pick-up in the facility coincides with a few recent spikes in the Secured Overnight Financing Rate.

“So, there’s definitely some evidence that banks are getting short on cash, and they’re having to pay more to get it,” says Moses Sternstein, who wrote about the phenomenon in his Random Walk blog.

He speculates the reason has less to do with the lagged effects of the Federal Reserve interest-rate hike campaign and more with the increased borrowing from the Treasury Department.

“All that cash flying to Treasury leaves less and less for everyone else,” he writes.

There could be a seasonal impact as well. Ryan Plantz at Nomura, who commented on the spikes in the SOFR rate, noted signs of deteriorating liquidity and tighter funding into the year end.

An ETF tracking the regional banks, the SPDR S&P Regional Banking ETF
has surged over the last month, rising 17%, though it’s still down 11% year-to-date.

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