Increased lending activity around the famous Fed desk

According to economist Edin Mujagic, if banks start borrowing during the Federal Reserve’s discount window, it’s a sign that something is happening. “When they get there to lend, the names of the banks are one of the Fed’s best kept secrets.”

Basically, the U.S. Federal Reserve is a bank where banks can borrow money, Mujajic explains, leveling the playing field. ‘Within that system you have all kinds of credit counters. Had the discount window been a physical counter, it would have been tucked away from the main entrance. Somewhere in an alley. Banks only come there if they cannot get money elsewhere in the financial markets.

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And precisely because there’s a stigma around that counter, it’s interesting to note when it gets busy, says Mujakic. ‘You can see that as the first sign that something is going on,’ he continues. When banks come to borrow money, the names of those banks are one of the central bank’s best kept secrets. Normally no one really goes there, but if something exceptional happens in the world there is patronage.

crises

Mujajic cites October 2008 as an example. ‘Back then people were borrowing about $100 billion a week. Or March 2020, at the start of the pandemic, that’s $50 billion a week. But usually no one comes.’

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It is quite remarkable that this situation has changed again recently. “In the last few weeks, lending was more than $10 billion a week, so we have the figures again – wearing hoodies and sunglasses. It’s very low compared to March 2020, but you don’t look at it. You have to compare it to normal times, and then nobody came. So it is significant that there are now lending banks there.’

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Mujakic goes a step further and calls it strange. “For months, maybe years, you’ve heard from all sides that America has nothing but a shortage of money,” he continues. ‘So, if you can’t finance in the normal way as a bank, that’s going to trigger a problem in the making.’

He insists that this could be a precursor, not a direct one. Because we don’t know. But I’ll keep an eye on this before 2023 rolls around, because if that lending counter picks up, you can slowly but surely think toward a conclusion that something could be fundamental in the US banking landscape.