The Federal Reserve Board has declared $25 billion in funding to support banks and other depository institutions in the wake of several bank failures in the United States.
By providing the funds, eligible banks could be assured that they would have enough liquid assets to meet their customers’ requirements in a crisis.
Federal Reserve Board established a $25 billion Bank Term Funding Program (BTFP) providing loans of up to one year to. “banks, savings associations, credit unions, and other eligible depository institutions,” stated an announcement released on March 12.
The “qualifying assets” that must be pledged as security by qualified firms include U.S. Treasury securities, agency debt, mortgage-backed securities, or other securities that are valued “at par” — price at which they were issued.
The Fed continued by saying that it would be “an additional source of liquidity against high-quality securities. Removing institution’s need to quickly sell those securities in times of stress.”
It happens at same time that Silicon Valley Bank (SVB) declared sizable sale of assets and stock in order to raise additional capital. This announcement caused depositors to panic and led to a run on the bank.
In the wake of stablecoin issuer Circle’s disclosure that it held $3.3 billion in SVB. Which further stoked panic and caused its stablecoin USD Coin USDC to lose its peg to the dollar. A bank run infected the cryptocurrency universe.
The launch of the new program coincides with the Fed’s announcement that U.S. Treasury Secretary Janet Yellen had authorized steps for the Federal Deposit Insurance Corporation (FDIC). To take in order to compensate SVB depositors and that regulators had shut down New York-based Signature Bank due to systemic risk.