Hot on the heels of several United States banks collapsed, the Federal Reserve Board has announced $25 billion worth of funding aimed at backstopping banks and other depository companies.
The fund will ensure that eligible banks will have sufficient liquidity to cover their customers’ needs in times of turmoil.
@federalreserve announced the Bank Term Funding Program (BTFP) to support American businesses and households, ensuring banks have the ability to meet the needs of all depositors: https://t.co/JIMjkooIDV
– Federal Reserve (@federalreserve) March 12, 2023
In a March 12 statement, the Federal Reserve Board said it is creating a $25 billion Bank Term Funding Program (BTFP) offering loans of up to one year to “banks, savings associations, credit unions, and other eligible depository institutions.”
Eligible companies must pledge US Treasurys, agency debt and mortgage-backed securities or other “qualifying assets” as collateral, which will be priced “at par” – the price at which the asset was issued.
The Fed added that it would be “an additional source of liquidity to high-quality securities, eliminating the need for institutions to quickly sell these securities in times of stress.”
Excellent, in my opinion.
Funding is in 1-year OIS (the 1-year Fed Funds base provided by the market) plus a 10 bps spread above.
Liquidity guaranteed 1 year in Fed Funds plus 10 bps posting collateral in the mud but priced at par.
Just deal.
– Alf (@MacroAlf) March 12, 2023
Explained as Silicon Valley Bank (SVB) announced on March 8 significant sale of assets and shares aimed at raising additional capital, which panicked depositors and triggered a run on the bank.
Related: US authorities prepare ‘material action’ to prevent SVB transmission
Banks exposed the contamination of the crypto space as stablecoin issuer Circle announced it had $3.3 billion in SVB, causing panic and causing stablecoin USD Coin (USDC) to lose its peg to the US dollar.
The new program comes the same day the Fed announced that US Treasury Secretary Janet Yellen approved actions for the Federal Deposit Insurance Corporation (FDIC) to make SVB depositors whole and the regulator closed Signature Bank in New York, citing systemic risks.