Federal Reserve Board Announces Bank Term Funding Program (BTFP)

On March 12, 2023, the Federal Reserve Board (FRB) announced the Bank Term Funding Program (BTFP), a new loan program that provides up to $25 billion in emergency funding to U.S. banks, savings associations, credit unions, and other eligible depository institutions.[0] This move was made with the support of the U.S. Treasury, which is offering up to $25 billion from the Exchange Stabilization Fund as part of the BTFP.[1] The program is designed to provide additional liquidity against high-quality securities and to eliminate the need for institutions to quickly sell those securities in times of financial stress.[2]

The BTFP is available to any U.S. federally insured depository institution eligible for primary credit under the FRB’s discount window, provided that the institution owns eligible collateral as of March 12, 2023. Eligible collateral includes any collateral eligible for purchase by the Federal Reserve Banks in open market operations, such as U.S. Treasuries, agency debt, and mortgage-backed securities. Advances are available for a term of up to one year and there are no fees associated with the program.[3]

In addition, the FRB’s discount window remains available for institutions to obtain liquidity against a wide range of collateral.[3] The discount window will apply the same margins used for the securities eligible for the BTFP, further increasing lendable value at the window.[4]

It is anticipated that the BTFP will remain active until March 11, 2024, or later.[1] It is intended to provide additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors, and to bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy.[5]

To prevent potential losses to depositors at Silicon Valley Bank (SVB) and Signature Bank, the agencies invoked the so-called “systemic risk exception.”[6] The Deposit Insurance Fund (DIF) has the ability to exceed the insured portion of deposits to protect depositors if it is determined that such an action would prevent or reduce the unfavorable economic or financial effects that could originate from placing a bank into receivership.[1]

0. “Fed May Inject $2 Trillion into US Banking System” BeInCrypto, 16 Mar. 2023, https://beincrypto.com/fed-may-inject-2-trillion-us-banking-system

1. “Treasury, Federal Reserve, and FDIC Take Actions to Protect Bank Depositors and Support Bank Liquidity to Conduct …” WilmerHale, 13 Mar. 2023, https://www.wilmerhale.com/insights/client-alerts/20230313-treasury-federal-reserve-and-fdic-take-actions-to-protect-bank-depositors-and-support-bank-liquidity-to-conduct-operations

2. “US Fed announces $25B in funding to backstop banks” Cointelegraph, 13 Mar. 2023, https://cointelegraph.com/news/us-fed-announces-25b-in-funding-to-backstop-banks

3. “U.S. Quasi-Sovereign Wealth Fund Known as the Exchange Stabilization Fund to Provide Backstop for Bank Term Funding Program” Sovereign Wealth Fund Institute, 13 Mar. 2023, https://www.swfinstitute.org/news/96119/u-s-quasi-sovereign-wealth-fund-known-as-the-exchange-stabilization-fund-to-provide-backstop-for-bank-term-funding-program

4. “Federal Reserve Launches New Bank Term Facility Program; First Republic Bank Receives Private Sector Liquidity” Lexology, 14 Mar. 2023, https://www.lexology.com/library/detail.aspx?g=f8ccfc5a-6a02-4692-ad76-52aead7d4028

5. “Fed announces emergency lending facility to shore up U.S. banks” Nikkei Asia, 13 Mar. 2023, https://asia.nikkei.com/Business/Finance/Fed-announces-emergency-lending-facility-to-shore-up-U.S.-banks

6. “US authorities upend banking rules in haste to save SVB” GlobalCapital, 15 Mar. 2023, https://www.globalcapital.com/article/2beimpcp4cx1trxumsa2o/fig/us-authorities-upend-banking-rules-in-haste-to-save-svb

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