The Federal Reserve Board announced on Mar. 12 the establishment of the Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging US Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. The program aims to provide liquidity to US depository institutions, which may be facing increasing withdrawals by depositors.
The Federal Reserve will receive $25 billion in financial security from the Exchange Stabilization Fund, courtesy of the US Treasury.[0] On Sunday, banks in need of infusions of cash used the tools provided by the Fed to borrow $11.9 billion from the Bank Term Funding Program. Federal Reserve Banks will provide financial institutions with the ability to take out loans for up to one year, using bonds, mortgage-backed securities, and other forms of debt as collateral.[1]
JPMorgan strategists said that the funding program should be able to inject enough reserves into the banking system to reduce reserve scarcity and reverse the tightening that has taken place over the past year. JPMorgan projected the maximum amount at $2 trillion, with smaller banks being the likely main users of the program, according to the note.[2]
The amount of money borrowed by banks from two Federal Reserve backstop facilities in the last week was $164.8 billion, demonstrating increased financial pressures following the collapse of Silicon Valley Bank.[3] Approximately $152.85 billion was taken out of the overall amount via the discount window or the conventional liquidity backstop for financial institutions.[4]
It is crucial for the Federal Reserve to ensure that banks have the ability to meet the needs of all their depositors.[5] The Bank Term Funding Program should be able to provide additional liquidity and reduce the tightening that has taken place over the past year, helping to ease the liquidity crunch.
0. “Federal Reserve Launches Program to Bail Out Banks” SchiffGold, 13 Mar. 2023, https://schiffgold.com/commentaries/federal-reserve-launches-qe-extra-lite-to-bail-out-banks/
1. “The forgotten rescue plan that could prevent another SVB-like collapse” CNN, 15 Mar. 2023, https://www.cnn.com/2023/03/15/investing/premarket-stocks-trading/index.html
2. “The Fed could add up to $2 trillion to the economy with its new bank lending program, says JPMorgan” Kitco NEWS, 16 Mar. 2023, https://www.kitco.com/news/2023-03-16/The-Fed-could-inject-2-trillion-into-the-economy-with-its-new-bank-backstop-program-says-JPMorgan.html
3. “Banks Rush to Backstop Liquidity With $165 Billion From Fed (1)” Bloomberg Law, 16 Mar. 2023, https://news.bloomberglaw.com/bankruptcy-law/banks-rush-to-backstop-liquidity-borrow-164-8-billion-from-fed
4. “Fed ‘Stands Ready’ to Provide Liquidity to Eligible Institutions” Watcher Guru, 16 Mar. 2023, https://watcher.guru/news/fed-stands-ready-to-provide-liquidity-to-eligible-institutions
5. “JP Morgan Chase: US Fed’s emergency loan can inject $2 trn in banking system to ease liquidity crunch” Business Today, 16 Mar. 2023, https://www.businesstoday.in/silicon-valley-bank/story/jp-morgan-chase-us-feds-emergency-loan-can-inject-2-trn-in-banking-system-to-ease-liquidity-crunch-373616-2023-03-16