Decrease In Emergency Loans
After the financial crisis in 2008 many banks had turned to the Fed for emergency loans, the banks were lending out large amounts of money on a weekly basis at low interest rates. Big and small banks all turned to the Fed for emergency loans over the past few years. As the economy is finally starting to recover the amount of money being borrowed for emergency relief has decreased to rates similar to those before the financial crisis. Some banks had borrowed more money than they needed just to play it safe after the financial crisis.
Banks decreasing their needs for emergency loans is a good sign indicating that the economy is recovering and that banks can now begin to stand on their own. Although borrowing has decreased, the loans taken out previously all pile up to a large amount. Large portions of this money has not really been used and is now just sitting in banks. The risk of the money currently sitting in banks is very high and can potentially hurt the economy. Banks should be more careful when they are taking out these emergency loans, and should consider how it will affect them in the long run.
Written by: Jessica Ho
Source: The Wall Street Journal