Hot on the heels of several United States bank collapses, the Federal Reserve Board has announced $25 billion worth of funding aimed at backstopping banks and other depository firms.The funds would ensure that eligible banks would have enough liquidity to cover the needs of their customers during times of turmoil.@federalreserve announces Bank Term Funding Program (BTFP) to support American businesses and households, assure banks have ability to meet needs of all their depositors: Federal Reserve (@federalreserve) March 12, 2023
In a March 12 statement, the Federal Reserve said it created a $25 billion Bank Term Funding Program (BTFP) offering loans of up to one year to “banks, savings associations, credit unions, and other eligible depository institutions.”Eligible firms must pledge U.S. Treasurys, agency debt and mortgage-backed securities or other “qualifying assets” as collateral, which will be valued “at par” — the price at which the assets were issued.The Fed added it 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.”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.5/ pic.twitter.com/3BxUC3weyE— Alf (@MacroAlf) March 12, 2023
It comes as Silicon Valley Bank (SVB) announced on March 8 a significant sale of assets and stocks aimed at raising additional capital, which panicked depositors and triggered a run on the bank. Related: US Fed announces $25B in funding to backstop banksThe bank run contaminated the crypto space as stablecoin issuer Circle disclosed it had $3.3 billion in SVB, causing further panic and resulting in its stablecoin USD Coin (USDC) losing its peg to the U.S. dollar.It also comes on the same day that regulators closed New York-based Signature Bank, citing systemic risk. This is a developing story, and further information will be added as it becomes available.
