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1 1 (March 31, 2023)

handle is hein.crs/govelcx0001 and id is 1 raw text is: Congressional ____ Sa Research Service Bank Term Funding Program (BTFP) and Other Federal Reserve Support to Banking System in Turmoil March 31, 2023 On March 10 and 12, respectively, the Silicon Valley Bank (SVB) and Signature Bank were taken into receivership by the Federal Deposit Insurance Corporation (FDIC) after large and sudden withdrawals by their depositors. The government then responded swiftly to concerns that arose about the systemic risk these failures posed with several actions designed to stabilize the banking system. This insight discusses the Federal Reserve's (Fed's) actions, including the creation of the Bank Term Funding Program (BTFP). Overview of the BTFP The new BTFP provide banks and other insured depository institutions with loans of up to one-year maturity. According to the Fed, this action will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy. The program provides an alternative to selling off securities or private lending to access liquidity in times of stress. The loans are backed by high-quality collateral, such as U.S. Treasuries and mortgage-backed securities. Banks are allowed to pledge those securities at par (face) value instead of market value. This benefits banks because many securities they bought when interest rates were lower have fallen in market value. To create this program, the Fed used emergency authority found in Section 13(3) of the Federal Reserve Act (12 U.S.C. @343.) As required by statute, the Fed Board of Governors unanimously found unusual and exigent circumstances to justify its creation and the program was approved by the Treasury Secretary. Treasury pledged $25 billion in assets from the Exchange Stabilization Fund (ESF) to backstop potential future losses that the program might incur. The Fed reported to Congress that it does not expect losses on the program, because the loans are backed by collateral and the loans are made with recourse (i.e., borrowers must repay beyond the collateral value). Congressional Research Service https://crsreports.congress.gov IN12134 CRS INSIGHT Prepared for Members and Committees of Congress

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