Federal Reserve Board Launches Emergency Bank Term Funding Program (BTFP) with Up to $2 Trillion Injected into US Banking System

On Wednesday, March 12th, the Federal Reserve Board announced the Emergency Bank Term Funding Program (BTFP).[0] The program is designed to provide liquidity to U.S. depository institutions, who may be facing increasing withdrawals by depositors. The BTFP offers loans of up to one (1) year in length to eligible depository institutions and U.S. branches of agencies of foreign banks that pledge qualifying assets as collateral.[1]

JP Morgan Chase & Co., the financial services company, estimated that the new program could inject up to $2 trillion in funds into the US banking system over the next 12 months. The company also stated that the $2 trillion was arrived at as per the amount of bonds held by US banks outside of the five biggest banks.[0]

The Federal Reserve has also reported that banks had $153 billion in loans at the “discount window,” a longstanding tool through which the Fed provides cash to banks in need of liquidity by lending against solid collateral. By Wednesday, the Federal Reserve had provided a total of $153 billion in loans through the “discount window,” which is a long-standing method of giving cash to banks needing liquidity by exchanging it for strong collateral.

JPMorgan strategists led by Nikolaos Panigirtzoglou in London wrote in a client note Wednesday that the usage of the BTFP is likely to be big.[2] They added that the Fed has promised to contribute the amount to relax the liquidity crunch, which is likely to be nearer to $2 trillion, the par amount of bonds held by the US banks.[3]

The BTFP program will last for one year and is likely to provide a substantial amount of funds to US banks.[4] Analysts at JPMorgan Chase & Co. estimated $2 trillion as an upper level for how much liquidity the new backstop could ultimately provide, although they also developed a smaller calculation of around $460 billion based on the amount of uninsured deposits at six U.S. banks that have the highest ratio of uninsured deposits over total deposits.

JPMorgan strategists wrote that the Bank Term Funding Program should be adequate to inject enough reserves into the banking system, so as to counter the reserve scarcity and undo the tightening that has occurred during the last year.[5] The Federal Reserve has stated that it will release data on a weekly basis in the same balance-sheet statement utilized to disclose utilization of financial assistance from the lending facility.[6] The release will occur at approximately 4:30pm on Thursday in New York.[6]

0. “JP Morgan says Fed’s emergency loan program may inject $2T into the US banking system” InvestorsObserver, 16 Mar. 2023, https://www.investorsobserver.com/news/qm-news/7942715967266514

1. “Recent Bank Failures and Fallouts Addressed by US Agencies” The National Law Review, 15 Mar. 2023, https://www.natlawreview.com/article/us-government-agencies-address-recent-bank-failures-and-fallout

2. “Fed bank loans high after Silicon Valley Bank, Signature Bank failures” Axios, 16 Mar. 2023, https://www.axios.com/2023/03/16/federal-reserve-emergency-lending-bank-loans

3. “Fed’s BTFP May Administer $2 Trillion to US Banks, States JP Morgan By CoinEdition” Investing.com, 16 Mar. 2023, https://www.investing.com/news/cryptocurrency-news/feds-btfp-may-administer-2-trillion-to-us-banks-states-jp-morgan-3031892

4. “BTFP The Latest Bank Bailout – RIA” Real Investment Advice, 14 Mar. 2023, https://realinvestmentadvice.com/btfp-the-latest-bank-bailout/

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

6. “New Fed Bank Backstop Has Scope to Inject as Much as $2 Trillion” Yahoo News, 16 Mar. 2023, https://news.yahoo.com/jpmorgan-says-fed-loans-2-034501837.html