The Federal Reserve Board (FRB) announced on Sunday its plan to provide additional funding to eligible depository institutions, in a bid to ensure that 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.
The new Bank Term Funding Program (BTFP) will offer loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions, pledging U.S. Treasuries, agency debt, and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par.
The BTFP will be an additional source of liquidity against high-quality securities, eliminating the need for an institution to quickly sell those securities in times of stress. The Department of the Treasury will make available up to $25 billion from the Exchange Stabilization Fund as a backstop for the BTFP, subject to the approval of the Treasury Secretary. The Federal Reserve, however, does not anticipate that it will be necessary to draw on these backstop funds.
The Federal Reserve is prepared to address any liquidity pressures that may arise, and is closely monitoring conditions across the financial system. The capital and liquidity positions of the U.S. banking system are strong, and the U.S. financial system is resilient.
Depository institutions may obtain liquidity against a wide range of collateral through the discount window, which remains open and available. In addition, 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 Federal Reserve is committed to supporting households and businesses and will take additional steps as appropriate. The Board is closely monitoring developments in financial markets and is prepared to use its full range of tools to minimize the impact on businesses, households, taxpayers, and the broader economy.
Additionally, after receiving a recommendation from the boards of the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, Treasury Secretary Yellen, after consultation with the President, approved actions to enable the FDIC to complete its resolutions of Silicon Valley Bank (SVB) 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.
The Federal Reserve’s announcement is welcome news for American businesses and households, as it provides additional support during a period of economic uncertainty.
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