What Was the Bank Term Funding Program?

The Bank Term Funding Program (BTFP) was an emergency lending program created by the Federal Reserve in March 2023 to provide emergency 澳洲幸运5开奖号码历史查询:liquidity to U.S. depository institutions. It was established in response to the sudden bank failures of Signature Bank and 澳洲幸运5开奖号码历史查询:Silicon Valley Bank♓, which were the largest such collapses since the 2008 financial cris𝔉is.

The program was created to support depositors such as American businesses and households by making additional funding available to eligible institutions to help ensure that banks would have the ability to meet the needs of all their depositors.

The BTFP offered loans of up to one year to U.S. banks, savings associations, credit unions, and other eligible depository institutions that pledged U.S. Treasuries, agency debt, mortgage-backed securities (MBS), and other qualifying assets as 澳洲幸运5开奖号码历史查询:collateral.

BTFP was intended as a temporary emergency measure and it stopped making new loans on March 11, 2024.

Understanding the Bank Term Funding Program

Two bank failures rocked the financial sector in March 2023 and they seemed to come out of nowhere. 澳洲幸运5开奖号码历史查询:Signature Bank and 澳洲幸运5开奖号码历史查询:Silicon Valley Bank both saw massive 澳洲幸运5开奖号码历史查询:bank runs as customers rushed to withdraw their deposits. These banks didn't ha𒅌ve enough liquid funds on hand to satisfy their customers’ cash requiꦇrements.

One reason for these bank failures was that normally safe investments in 澳洲幸运5开奖号码历史查询:U.S. Treasury securities began losing money as 澳洲幸运5开奖号码历史查询:interest rates rose swiftly in response to inflationary pressures. Treasuries have virtually zero risk of losing 澳洲幸运5开奖号码历史查询:principal when they're held to maturity but💯 bond prices in the secondary market are inversely related to interest rates. Those bonds were sold at a loss as rates rose to increase the liquidity necessary to fund customer withdrawals.

Panic soon set in, amplified by social media. The 澳洲幸运5开奖号码历ꦕ史查询:Fe🧔deral Deposit Insurance Corp. (FDIC) and the Federal Reserve were forced to step in and rescue the banks. Federal deposit insurance from the FDIC is limited to $250,000 per customer per institution, however. A majority of accounts held at these failed banks greatly exceeded that amount.

The Fed therefore set up the Bank Term Funding Program to provide liquidity to U.S. depository institutions. Each Federal Reserve Bank would make cash advances to eligible borrowers under the program, taking as collateral certain types of securities that could be purchased by Federal Reserve Banks in 澳洲幸运5开奖号码历史查询:open market operations. Eligible borrowers included any U.S. federally insured bank, sa𓂃vings association, credit union, or U.S. branch or agency o𒊎f a foreign bank.

The rate for term advances was the one-year 澳洲幸运5开奖号码历史查询:overnight index swap rate plus 10 澳洲幸运5开奖号码历史查询:basis points. The rate was fixed for the term of the advance on the day when the advance was made. The size of the advance was limited to the amount of collateral pledged. Advances could be requested under the program until March 11, 2024.

BTFP vs. Primary Credit Lending

The Bank Ter🔜m Funding Program and Primary Credit Lending are both emergency lending programs created by the Federal Reserve to provide liquidity to U.S. depositor♋y institutions. Some differences exist between the two programs, however.

The BTFP offered loans of up to one year to banks, savings associations, credit unions, and other eligible depository institutions that pledged U.S. Treasuries or other qualifying assets as collateral. The Primary Credit Lending program is a short-term lending program that provides overnight loans to eligible depository institutions that🌊 are in generally sound financial condition and have collateral to pledge.

The Primary Credit Lending program is viewed as the principal safety valve for ensuring adequate liquidity in the banking system. Primary credit is priced relative to the 澳洲幸运5开奖号码历史查询:Federal 💃Open Market Committee (FOMC) target range for the federal funds rate. It's normally granted on a no-questions-asked, minimally administered basis. There are no restrictions on borrowers’ use of primary credit.

The Bottom Line

The Bank Term Funding Program (BTFP) was a Federal Reserve p💛rogram that was designed to support American depositors 🔜by making additional funding available to banking institutions. The BTFP was intended as a temporary emergency measure made in response to the fallout of the failures of Silicon Valley Bank and Signature Bank in March 2023. It was intended to last just one year and BTFP stopped making new loans on March 11, 2024.

The program offered loans of up to one year to eli🗹gible borrowers pledging collateral eligible for purchase by Federal Reserve Banks in open market operations𝐆. Advances under the program were made at a fixed rate and there were no fees to participate.