The Federal Reserve introduced a financing program for banks to prevent more financial liquidity concerns, making $25 billion accessible to qualifying businesses.
After multiple bank failures in the United States, the Federal Reserve Board has announced $25 billion in liquidity to support banks and other depository institutions.
The funds would guarantee that qualifying banks have sufficient liquidity to meet their clients’ requirements during times of crisis.
The Federal Reserve Board said on March 12 that it has established a $25 billion Bank Term Financing Program (BTFP) to provide loans of up to one year to “banks, savings organizations, credit unions, and other qualifying depository institutions.”
Qualified corporations must pledge U.S. Treasuries, agency debt, 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 said it would provide an “additional source of liquidity against high-quality assets, therefore lessening the need for institutions to sell these securities promptly in times of stress.”
One year of assured liquidity at Fed Funds + 10 basis points with collateral buried in the dirt yet valued at par.
Silicon Valley Bank (SVB) announced on March 8 a large sale of assets and stocks to raise extra capital, causing depositors to panic and triggering a run on the bank.
The bank run polluted the crypto sector when stablecoin issuer Circle reported it had $3.3 billion in SVB, generating more panic and ultimately losing its dollar peg in its stablecoin USD Coin.
The Fed announced the new initiative on the same day that Treasury Secretary Janet Yellen authorized measures for the Federal Deposit Insurance Corporation (FDIC) to pay SVB customers. Authorities closed New York-based Signature Bank, citing systemic danger.