I don’t think that the banks needed to borrow money as a result of delinquent loans. The banks needed to borrow money due to a cash flow problem caused by the fear in the credit markets. So, in most cases I suspect those loans will get repaid. (Remember that most of the failed mortgages that we are always talking about on Piggington have been sold off to investors. There losses are seperate from what the fed is trying to deal with here.)
Potentially, we could see a major bank who is borrowing from the discount window collapse, but I suspect that’s not a big risk at this time. Regardless if that happens the fed will step in and try to make the process of dissolving the failed bank orderly. (And this process could be viewed by some as a bailout, but we haven’t reached that point yet)
