The Federal Reserve has announced that it is creating a new Bank Term Funding Program (BTFP) that will offer loans of up to one year in length to eligible depository institutions, including banks, savings associations, credit unions, and others.
The purpose of this program is to help ensure that banks have the ability to meet the needs of all their depositors and to support American businesses and households during these uncertain times.
@federalreserve announces Bank Term Funding Program (BTFP) to support American businesses and households, assure banks have ability to meet needs of all their depositors: https://t.co/JIMjkooIDV
— Federal Reserve (@federalreserve) March 12, 2023
The BTFP will be an additional source of liquidity for high-quality securities and will eliminate the need for institutions to quickly sell those securities during times of stress. The loans will be secured by U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets valued at par. The program will also provide a backstop of up to $25 billion from the Exchange Stabilization Fund, although the Federal Reserve does not anticipate needing to draw on these funds.
The Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (FDIC) have been closely monitoring the financial markets and are prepared to use their full range of tools to support households and businesses, and will take additional steps as appropriate. The capital and liquidity positions of the U.S. banking system are strong, and the U.S. financial system is resilient.
Depository institutions can also obtain liquidity against a wide range of collateral through the discount window, which remains open and available. The discount window will apply the same margins used for the securities eligible for the BTFP, further increasing the lendable value at the window.
The creation of the BTFP is a part of the Federal Reserve’s ongoing efforts to support the U.S. economy during the COVID-19 pandemic. The Board is carefully monitoring developments in financial markets and is prepared to address any liquidity pressures that may arise. With the support of the Department of the Treasury, the Board is confident that this program will help bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy.
In addition, after receiving a recommendation from the FDIC and the Federal Reserve, Treasury Secretary Yellen has approved actions to enable the FDIC to complete its resolutions of Silicon Valley Bank and Signature Bank in a manner that fully protects all depositors, both insured and uninsured. These actions will reduce stress across the financial system, support financial stability, and minimize any impact on businesses, households, taxpayers, and the broader economy.
Overall, the creation of the BTFP is a significant move by the Federal Reserve to provide additional support to the U.S. economy during these challenging times. The program will help ensure that banks have the liquidity they need to meet the needs of their depositors and support American businesses and households. The Federal Reserve and the FDIC will continue to monitor financial markets and take additional steps as appropriate to support the U.S. economy.
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