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Federal Reserve Board to End Bank Term Funding Program

The program provides an additional source of liquidity to banks

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  • Written by  Banking Exchange staff
 
 
Federal Reserve Board to End Bank Term Funding Program

The Federal Reserve Board has announced the Bank Term Funding Program (BTFP) will cease making new loans to depository institutions from March 11 this year, as scheduled.

The BTFP offers loans for up to one year to banks, savings associations, credit unions and other eligible depository institutions, with the borrowers pledging high-quality assets including US Treasuries and US agency securities as collateral.

It was introduced in March 2023 during a period of stress caused by liquidity pressures across America to provide additional funding to depository institutions.

The additional funding was intended to act as an additional source of liquidity against high-quality securities to eliminate an institution’s need to quickly sell securities in times of stress.

The Federal Reserve Board created the program to stabilize the banking system and provide support for the economy by ensuring banks had the ability to meet the needs of all their depositors.

The program will continue to make loans until the expiration date but, as the program prepares to end, the interest rate applicable to new BTFP loans has been adjusted with immediate effect.

The adjustment ensures the rate on new loans extended until the program’s expiration will be no lower than the interest rate on reserve balances in effect on the day the loan is made.

This guarantees that the BTFP continues to support the goals of the program until it expires.

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