The Fed has become the de facto interbank market in the US. It takes cash deposits from commercial banks, in the form of excess reserves. It also lends to the banks through a dizzy array of acronyms, such as the TARP.
The chart above compares the relative magnitude of these two activities. Unsurprisingly, Fed borrowing and lending are broadly the same magnitude.
However, a closer look at Fed lending reveals a worrying trend. It has begun to pick up, suggesting renewed banking sector difficulties? Are we in for another round of the credit crunch. I hope not. Enough already!