The government’s step Backstop deposits in insolvent banks contributed to the return of sanity to the financial markets. Some economists see the mitigating measures as the unintended consequence of fueling inflationary pressures and equating the bailout with quantitative easing.

What happened: The Fed is likely to inject about $2 trillion into the US banking system to alleviate the liquidity crisis banks are facing. JP Morgan stock strategist Nikolaos Panigirtzoglou said in a note to customers, reported Bloomberg.

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“The use of the Fed Program for financing bank terms will likely be large,” the analyst reportedly said. The maximum use of the facility is about $2 trillion, which is the face value of bonds held by banks outside the Big Five, he added.

The US banking system still has $3 trillion in reserves, although much of it is held by the largest banks, JPMorgan reportedly said.

Why it matters: The BTFP program, announced by the Fed last weekend, will provide additional funds in the form of loans with maturities of up to one year to banks, thrifts, credit unions and other eligible depository institutions. These institutions may draw down the loan by pledging US Treasuries, government and mortgage-backed securities, and other qualifying assets as collateral.

This funding was intended to help the banks overcome the liquidity crunch resulting from the bank runs triggered by the collapse of three banks in the US, including that of SVB Finance Group SIVB-in possession Silicon Valley Bank.

Take a shot at Fed action, Economist peter ship said the Fed’s latest move does effectively raised the limit on insurance deposits to infinity. He also raised the specter of bank deposits falling in value due to inflation amid the increased money supply.

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