BEHIND THE BANK BACKSTOP PROGRAM: HOW MUCH WILL THE FEDERAL RESERVE INJECT INTO THE SYSTEM?

Market analysts are closely monitoring the Federal Reserve's new bank backstop program to determine the amount of extra funding that will be added into the system. According to JPMorgan Chase & Co. analysts, the program could inject up to $2 trillion in liquidity, although their prediction based on the amount of uninsured deposits at six US banks with the highest ratio of uninsured deposits over total deposits is closer to $460 billion.

While this is a smaller amount, it is still significantly larger than historic usage of the so-called discount window, another Fed facility that carries a stigma and has historically involved banks taking a haircut on the amount borrowed relative to collateral. The Fed has announced that it plans to publish figures weekly in the same balance-sheet statement that it uses to reveal uptake of funding from the window, with the next release scheduled for around 4:30 pm Thursday New York time.

Despite the fact that the largest banks are unlikely to tap the program, strategists led by Nikolaos Panigirtzoglou in London believe that the usage of the Fed's Bank Term Funding Program is likely to be significant. They noted that the maximum usage envisaged for the facility is close to $2 trillion, which is the par amount of bonds held by US banks outside the five largest.

As the situation continues to develop, market observers and investors will be paying close attention to the impact of the program on the financial system, as well as any potential risks or opportunities that may arise. Financial institutions have mixed feelings about the program. While some may view it as a valuable lifeline in times of economic stress, others may be hesitant to rely on it due to the potential stigma attached to borrowing from the Federal Reserve. Stay tuned for further updates as more information becomes available.