Banking crisis: are the money printers back on?

Last night, the US Federal Reserve (central bank) announced that its balance sheet increased by $297 billion to $8.63 trillion for the week of March 15. With that, the balance reached its highest level since November 2022. According to some, this means that the money printers are back on, but not everyone agrees.

Are the money printers back on?

The sharp increase in the number of assets on the balance sheet of the US central bank means that the money printers are back on, according to many analysts in the crypto world. That the Federal Reserve has started again quantitative easing or QE.

We speak of QE when the central bank buys up assets such as government bonds and, for example, mortgage-backed financial instruments to provide liquidity to the markets. The Federal Reserve started QE after the crash of 2008 and it went wild again in 2020 at the start of the COVID-19 pandemic.

However, the current expansion of the balance sheet is mainly due to the fact that banks are taking out many short-term loans from the central bank to deal with the crisis of confidence. This is again the result of the collapse of three banks in the United States.

“QE is to increase the balance sheet for monetary purposes. This is about financial stability and this balance sheet expansion is not QE.” thus Marc Chandler, the head of strategy at Bannockburn Global Forex.

Banks borrowing

The official data shows that banks borrowed a record $152.9 billion from the Federal Reserve in the so-called discount windows. Through the discount window, banks can borrow money from the Federal Reserve if they subsequently pledge a financial asset.

For example, they store US government bonds with the Federal Reserve, for which they immediately receive capital in return. The discount window is therefore a way for the Federal Reserve to help banks with money when the need is high. This way it can monitor financial stability if it threatens to disappear.

The chart above shows how much banks borrowed from the Federal Reserve in recent days compared to previous crisis moments. Even the 2008 crisis is dwarfed by what has happened in recent days in this area.

On the other hand, we should not forget that these figures are not adjusted for inflation, which means that the reality is slightly better than expected. “The increase in the Federal Reserve balance sheet is a temporary reflection of bank runs on the weaker brothers in the system,” said Andy Constan, the CEO of Damped Spring Advisors.

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