JPMorgan: The Fed will provide $2 trillion of liquidity to the US banking system.

While developments in the US banking sector since late last week raised concerns in the markets, analysts said the Fed could provide banks with cash.

According to US investment bank JPMorgan, the US Federal Reserve (Fed) emergency lending program could inject up to $2 trillion in funds into the US banking system and alleviate the liquidity crisis.

“The use of the Fed’s Periodic Bank Financing Program is likely to be substantial,” strategists led by Nikolaos Panigirtzoglou wrote in a note to bank clients on Wednesday. While it was claimed that larger banks were less likely to benefit from the program, the maximum use of this program was forecast to be close to $2 trillion.

HIGHEST RESERVES IN THE LARGEST BANKS

The economists wrote that the Bank’s Periodic Financing Program should inject enough reserves into the banking system to reduce reserve shortages and reverse the tightening that occurred last year.

JPMorgan strategists wrote that while there is still $3 trillion in reserves in the US banking system, a significant portion is held by the largest banks. Analysts said the tighter liquidity was due to the Fed’s quantitative tightening.

BANKING SECTOR IN PANIC

In addition to the bankruptcies of California-based SVB and New York-based Signature Bank, Fed rate hikes were cited as a major reason for developments in the banking industry after Silvergate. Capital, which is primarily interested in cryptocurrency transactions. , announced that it plans to stop its operations.

The bankruptcy of SVB and Signature Bank prompted bank regulators to prevent panic from spreading to the financial system. The US Treasury Department, the Fed and the US Federal Deposit Insurance Corporation (FDIC) made decisions about deposit protection after these bankruptcies, and it was reported that customers of failed banks would be paid in full.