On March 12, 2023, in response to concerns about the ongoing ripple effects of recent bank failures, the Federal Reserve Board established the new Bank Term Funding Program (the Program) to provide additional funding to eligible depository institutions in order to enhance banks’ ability to meet the liquidity needs for their depositors. Specifics were released today.
Who Can Borrow Under the Program?
The Program offers loans for up to one year to banks, savings associations, credit unions and other eligible depository institutions that pledge qualifying U.S. Treasuries and other eligible securities as collateral. Eligible borrowers that have discount window borrowing documentation in place and are eligible for “primary credit” from the Federal Reserve will be able to take advantage of the Program immediately.
What Collateral Is Eligible?
Generally, the collateral eligible under the Program is limited to collateral eligible for purchase by the Federal Reserve in open market operations owned on March 12, 2023. These are obligations fully guaranteed as to principal and interest by the United States or any agency of the United States. This collateral limit distinguishes the Program from primary credit from the Fed, which accepts a wider range of securities and loans as collateral.
How Will This Collateral Be Valued?
The eligible securities will be valued at par (rather than fair market value) so that institutions will not have to worry for collateral purposes about losses (whether realized or unrealized) that they may be carrying on these securities on their financial statements. Advances under the Program can be made up to the par value of all eligible collateral the institution may borrow up to the par value of eligible collateral it can pledge to the Federal Reserve.
At What Rate Will a Loan Be Made?
Advances will be extended at the one-year overnight index swap (OIS) rate as of the day the advance is made + ten basis points. The interest rate will be fixed at the time the advance is made for the life of the advance. There are no fees for participating in the Program.
How Long Will the Program Last?
The Program will be operational from March 12, 2023, until March 11, 2024.
How Is a Loan Initiated Under the Program?
Depository institutions can initiate advances under the Program by contacting their supervising Reserve Bank, and submitting a request using an email template.
More details about the Program and a list of FAQs is available here.
If you have any questions, please do not hesitate to contact a professional in our Financial Services Group.