Federal Reserve Board Introduces Bank Term Funding Program to Support Depositors

In order to provide support to households and businesses in the United States, the Federal Reserve Board has announced that it will offer more funding to eligible depository institutions.

The objective of this move is to ensure that banks have the necessary resources to meet the needs of all their depositors, which will strengthen the banking system's capacity to protect deposits and provide money and credit to the economy.

The Federal Reserve has made it clear that it is ready to tackle any liquidity pressures that may emerge.

The additional funding will be available through a newly-created Bank Term Funding Program (BTFP), which will provide loans of up to one year to credit unions, banks, savings associations, and other eligible depository institutions.

The collateral for the loans will be U.S. Treasuries, agency debt and mortgage-backed securities, and other assets that meet certain criteria, which will be valued at par.

By allowing institutions to use high-quality securities as collateral, the BTFP will be an additional source of liquidity, reducing the need for institutions to quickly sell those securities during stressful times.

The Department of the Treasury has been authorized to make available up to $25 billion from the Exchange Stabilization Fund to serve as a safety net for the Bank Term Funding Program, subject to the approval of the Treasury Secretary.

The Federal Reserve believes that it will not need to access these safety net funds.

Following the advice of the boards of the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, Treasury Secretary Yellen, with the consent of the President, has taken measures to allow the FDIC to execute its resolutions of Silicon Valley Bank and Signature Bank, ensuring the protection of all depositors, both insured and uninsured.

These steps will reduce pressure throughout the financial system, promote financial stability, and minimize the impact on businesses, households, taxpayers, and the overall economy.

The Board is closely monitoring developments in financial markets, but the capital and liquidity positions of the U.S. banking system are robust, and the U.S. financial system is durable.

Depository institutions have the option to receive liquidity against various types of collateral through the discount window, which is currently open and accessible.

Furthermore, the discount window will utilize the same margins as those applied to eligible securities in the BTFP, effectively increasing the amount of funds that can be borrowed through the window.