THE MARRINER S. ECCLES FEDERAL RESERVE BOARD BUILDING.
U.S. authorities have announced an emergency measure to protect bank deposits.
The protection scheme comes as part of a wider effort to shore up confidence in the financial system after bank runs forced regulators to take control of Silicon Valley Bank (SVB) and Signature Bank.
- The U.S. Federal Reserve (Fed) said on Sunday that it will create a new facility for protecting bank deposits called the Bank Term Funding Program (BTFP).
- The program will provide loans to eligible U.S. depository institutions that pledge forms of collateral including U.S. Treasuries and mortgage-backed securities.
- The measure aims to prevent institutions from needing to sell high-quality securities that have seen large drops in value during periods of financial stress.
- The loans will value collateral at 100 cents on the dollar, giving eligible institutions access to more financing than usual for their securities.
- U.S. Treasury Secretary Janet Yellen signaled that the emergency measure may extend to accounts with deposits in excess of the $250,000 that is usually guaranteed by the Federal Deposit Insurance Corporation (FDIC)
- $25B has been made available to support the program, which will provide loans of up to one year.
Zoom Out:
- At the end of 2022, U.S. banks faced losses of over $300B on securities that they intended to hold until maturity.
- SVB collapsed after its parent company was forced to sell $21B of securities at a loss of $1.8B to cover expenses.
- Other banks appear to be in a similar predicament to SVB, according to a senior Treasury official cited by Bloomberg.
