The US Federal Reserve's Bank Term Funding Program will offer loans with maturities of up to a year to banks, savings associations, credit unions, and other eligible depository institutions.
The Bank Term Funding Program will offer loans with maturities of up to a year to banks, savings associations, credit unions, and other eligible depository institutions.The Fed has raised rates from near zero a year ago to between 4.50% and 4.75% now to combat inflation that hit a 40-year high last year.
The same collateral terms will also be available for loans drawn from the Fed’s “discount window,” its traditional lender-of-last-resort facility. Ordinarily, loan amounts were governed by the market value of the pledged collateral. That OIS rate was quoted at about 4.9% late Sunday following the Fed’s announcement, according to Refinitiv data, down from as high as 5.6% last week before Silicon Valley’s difficulties emerged and started driving rates lower.The loan commitments made by the Fed’s 12 regional banks will be backstopped with $25 billion from the US Treasury’s Exchange Stabilization Fund.
That suggests “that the par valuation of the collateral would only become relevant if the borrowing institution lacks sufficient assets to repay the loan,” Goldman wrote.“One of the biggest revelations about the failure of Silicon Valley Bank to raise capital last week was the impact of the cumulative increase in interest rates over the last year on their securities portfolios,” Jefferies economists wrote after the details were released.
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