Key Takeaways
- The funds will offer loans of up to one year to banks, credit unions, and savings associations.
- Fed claims the Bank Term Funding Program would be an “additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.”
On March 12, the U.S. Federal Reserve Board announced the $25 billion Bank Term Funding Program (BTFP) to aid banks that face liquidity issues. The latest FED move comes after Silicon Valley Bank collapsed, marking the largest bank failure since the 2008 US financial crisis, roiling global financial markets and stranding billions of dollars belonging to firms and investors.
According to the Fed statement, the fund will offer loans of up to one year to banks, credit unions, savings associations, and other eligible depository institutions. Further, the Fed added that BTFP would be an “additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.”
The US treasury Department would be providing the funds for BTFP. “With the approval of the Treasury Secretary, the Treasury Department will make available up to $25 billion from the Exchange Stabilization Fund as a backstop for the BTFP. The Federal Reserve does not anticipate that it will be necessary to draw on these backstop funds”, the official statement reads
The Fed announcement comes on the same day Signature Bank, an FDIC-insured New York state-chartered commercial bank, was closed by New York state financial regulators on Sunday as fallout from Silicon Valley Bank’s collapse spread to other lenders and sectors. SVB was taken over by FDIC and shut down on Friday after panic spread among investors who yanked $40 billion from the bank and efforts to raise fresh capital failed.
The SVB implosion has also put several companies in the Web3 to the point of liquidity crunch. Crypto firm Circle had earlier disclosed it had $3.3 billion of its $40 billion of USD Coin reserves at the Silicon Valley Bank. The firm further added that SVB was one of six banks relied on to manage USDC’s cash reserves. Bankrupt crypto lender BlockFi had $227 million in funds held at SVB.
