Credit Crisis Watch: Update – discount window borrowing declines

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I reviewed a number of credit measures in yesterday’s post and concluded: “Most indications are that the credit market tide has turned on the back of the massive reflation efforts orchestrated by central banks worldwide and that the credit system has started thawing.”

Further evidence that the convalescence process is on track has just arrived, courtesy of Asha Bangalore (Northern Trust). It comes in the form of data showing a sharp decline in primary institutions’ borrowing at the discount window – down by almost 65% since the “panic peak” recorded during the week of October 29, 2008.


Source: Northern Trust – Daily Global Commentary, May 18, 2009.

Read together with the impressive tightening in credit spreads since October/November 2009, this measure serves as a further indication of progress that has been made with the fixing of the credit machine. However, the unclogging process still has a way to go before confidence in the world’s financial system is restored to pre-crisis levels and liquidity starts to move freely again.

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2 comments to Credit Crisis Watch: Update – discount window borrowing declines

  • Paul Benequista

    Prieur, wouldn’t you say that this, combined with the TED spread, are more important indications of where we are headed than the equity markets movement? It is quite favorable, although my only concern with the TED is that maybe massive liquidity has created an artificial situation that may not be really indicative of what the TED typically indicates given the unusual circumstances we were faced with.

  • Paul: The tightening of the spreads and the rise in equity and commodity prices are strongly intertwined. Massive reflation (i.e. printing-press action) is impacting spreads and all reflation trades. Yes, the speed of the asset recovery has an artificial feel to it and looks like too much too soon. Convalescence after serious illness is usually a slower process if you want to avoid relapses.

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