MNI BRIEF: Fed Unveils Funding Facility To Relieve SVB Strain
Fed unveils new backstop to prevent contagion from SVB collapse.
The Federal Reserve Sunday announced new funding for financial institutions to help assure banks have the ability to meet the needs of all their depositors as investors worry about contagion from the collapse of Silicon Valley Bank.
"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 Fed said in a statement. "The Federal Reserve is prepared to address any liquidity pressures that may arise."
The financing will be channeled through a a new Bank Term Funding Program (BTFP) offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral, the Fed said.
"After receiving a recommendation from the boards of the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, Treasury Secretary Yellen, after consultation with the President, approved actions to enable the FDIC to complete its resolution of Silicon Valley Bank in a manner that fully protects all depositors, both insured and uninsured. These actions will reduce stress across the financial system, support financial stability and minimize any impact on businesses, households, taxpayers, and the broader economy," the Fed said.
The Fed said it is monitoring financial market developments carefully but added capital and liquidity positions of the U.S. banking system are strong and the U.S. financial system is resilient. The Fed said banks may obtain liquidity through the discount window, which will apply the same margins used for the securities eligible for the BTFP, further increasing lendable value.
(See MNI INTERVIEW: Ex-FDIC's Bair Sees Limited SVB Contagion Risk)