The Federal Reserve established a funding program for banks, making $25 billion available to eligible businesses in an attempt to avoid additional bank liquidity problems.
Following the collapse of several banks in the United States, the Federal Reserve Board has announced a financing of 25,000 million dollars aimed at supporting banks and other depository companies.
The funds would ensure that eligible banks have sufficient liquidity to meet the needs of their clients in times of turbulence.
@federalreserve announces Bank Term Funding Program (BTFP) to support American businesses and households, assure banks have ability to meet needs of all their depositors: https://t.co/JIMjkooIDV
— Federal Reserve (@federalreserve) March 12, 2023
The Federal Reserve (@federalreserve) announces the Bank Term Financing Program (BTFP) to support American businesses and households, ensuring banks have the ability to meet the needs of all their depositors.
In a announcement On March 12, the Federal Reserve said it created a $25 billion Bank Term Financing Program (BTFP) that offers loans of up to one year to “eligible banks, savings associations, credit unions, and other depository institutions. “
Eligible companies must pledge US Treasury bonds, agency debt, and mortgage-backed securities or other “qualifying assets” as collateral, which will be valued “at par,” that is, at the price at which the bonds were issued. assets.
The Fed added that it would 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.”
Excellent, in my opinion.
Funding is at 1-year OIS (basically 1-year market-implied Fed Funds) plus a meagre 10 bps spread on top.
1 year guaranteed liquidity at Fed Funds plus 10 bps posting collateral deep in the mud but valued at par.
Quite the deal.
— Alf (@MacroAlf) March 12, 2023
Excellent, in my opinion.
Funding is through the 1-year Overnight Index Swap (OIS) (basically, the 1-year market-implied federal funds) plus a small margin of 10 basis points.
It’s quite an attractive deal: liquidity guaranteed for one year to federal funds plus 10 basis points, with the possibility of using collateral with nominal value but of low credit quality.
It comes as Silicon Valley Bank (SVB) announced on March 8 a major sale of assets and shares aimed at raising additional capital, sending panic among depositors and triggering a bank run.
The bank run polluted the cryptocurrency space when stablecoin issuer Circle revealed it held $3.3 billion in SVB, causing further panic and prompting its stablecoin USD Coin (USDC) lose its peg to the US dollar.
It also comes on the same day that regulators shut down New York-based Signature Bank, citing systemic risk.
This is a developing story, and more information will be added as it becomes available.
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