Federal Reserve Board announces it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors

In view of the recent bank failures of the two U.S. banks Silicon Valley Bank and Signature Bank and the potential impact upon the U.S. banking system, the Federal Reserve Board (FED) has announced a new liquidity program for banks, the so-called Bank Term Funding Program (BTFP). The program which is currently limited to one year will provide up to $25 billion to eligible institutions which may also draw additional funds at the discount window of the FED. This shall help institutions meet their depositors‘ needs and provide further credit to the market.
##### The key terms of the program are as follows:
Eligibility: The new funding program is available to „any U.S. federally insured depository institution (including a bank, savings association, or credit union) or U.S. branch or agency of a foreign bank that is eligible for primary credit (see 12 CFR 201.4(a)“.
Possible drawing amount: The amount of credit an institution may obtain is limited to the value of its pledged collateral.
Eligible collateral: The securities eligible to function as collateral under the new Bank Term Funding Program are those set out in 12 CFR Part 201.108 which primarily includes bonds and notes issued by (local) government agencies.
Interest rate: The interest rate on the short-term borrowing will be the „one-year overnight index swap rate plus 10 basis points“ and will be fixed for the lending period at the rate that is prevalent at the date of the advancement of the funding to the institution.
To conclude, the FED emphasizes that „the capital and liquidity positions of the U.S. banking system are strong and the U.S. financial system is resilient“ and that it will not hesitate to take additional measures to ensure that it stays that way.