Funding program set up after failure of two regional banks last year will stop making new loans in March

No new loans will be made after March 11 by a Federal Reserve program that was established in the wake of two regional bank failures last year and was designed to assure the stability of the banking system, the agency said late Wednesday.

The Fed said its Bank Term Funding Program (BTFP) would quit making loans in 45 days. The program will continue to make loans until the March deadline and “is available as an additional source of liquidity for eligible institutions,” the Fed said. The agency said the end of the lending was occurring “on schedule.”

The BTFP was established March 12, 2023, by the Fed. It was set up after the failure of Silicon Valley Bank (SVB) of Santa Clara, Calif., and Signature Bank of New York, N.Y. Both failed after experiencing runs on their deposits.

In establishing the program, the Fed said it was “prepared to address any liquidity pressures that may arise from the fallout of the failure of the two banks.” It said the BTFP was designed to make additional funding to eligible depository institutions (including banks, savings institutions and credit unions) to help assure they could meet the needs of all their depositors, the Fed said.

The BTFP, the Fed said then, would offer loans of up to one year in length to all eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral; the assets were valued at par.

The Treasury said last spring it made available up to $25 billion from the Exchange Stabilization Fund as a backstop for the BTFP, although the Fed downplayed the possibility of drawing on those funds.

In Wednesday’s announcement, the Fed said that, as the program ended, the interest rate applicable to new BTFP loans has been adjusted such that the rate on new loans extended from now through program expiration will be no lower than the interest rate on reserve balances in effect on the day the loan is made.

“This rate adjustment ensures that the BTFP continues to support the goals of the program in the current interest rate environment,” the agency said. The change is effective immediately and all other terms of the program are unchanged, the Fed asserted.

Federal Reserve Board announces the Bank Term Funding Program (BTFP) will cease making new loans as scheduled on March 11