Federal Reserve Panics: Announces New Bailout Program And Recapitalizes Silicon Valley Bank

The Federal Reserve Board on Sunday announced that it will provide additional funding to eligible depository institutions to help them meet the needs of all their depositors, a move that will backstop depositors and protect financial institutions, including SVB Financial Group’s SIVB Silicon Valley Bank. The announcement came just fifteen minutes following the open of futures trade.

The move is aimed at supporting American businesses and households by bolstering the capacity of the banking system to safeguard deposits and ensure the provision of money and credit to the economy.

To make this happen, the Federal Reserve will create a new Bank Term Funding Program (BTFP), which will offer loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions.

The financing will be made available through pledging U.S. Treasuries, agency debt, mortgage-backed securities, and other qualifying assets as collateral.

The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.

The Department of the Treasury will make available up to $25 billion from the Exchange Stabilization Fund as a backstop for the BTFP. However, the Federal Reserve does not anticipate that it will be necessary to draw on these backstop funds.

According to a press release issued by the Federal Reserve Board, conditions across the financial system are being monitored and the board is prepared to use its full range of tools to support households and businesses and will take additional steps as appropriate.

These actions are aimed at reducing stress across the financial system, supporting financial stability, and minimizing any impact on businesses, households, taxpayers, and the broader economy, the Board stated.

The Federal Reserve Board reassured that the capital and liquidity positions of the U.S. banking system are strong, and the U.S. financial system is resilient.

Depository institutions can obtain liquidity against a wide range of collateral through the discount window, which remains open and available.

Silicon Valley Bank Recapitalized By The Fed

Depositors of Silicon Valley Bank SIVB will have access to all their money starting Monday, according to regulators.

The Federal Reserve Board, Federal Deposit Insurance Corporation (FDIC), and Treasury Department in a joint statement said that the FDIC will complete its resolution of Silicon Valley Bank in a manner that fully protects all depositors.

The resolution was made possible through a systemic risk exception, following a recommendation from the boards of the FDIC and the Federal Reserve.

No losses associated with the resolution will be borne by the taxpayer, the statement added.

Similar protection has been extended to depositors of Signature Bank SBNY which was closed by its state chartering authority.

Shareholders and unsecured debtholders will not be protected, and senior management has been removed.

Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.

Additionally, the Federal Reserve Board has announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.

The joint announcement led to a major spurt in the prices of major cryptocurrencies, with Bitcoin BTC/USD+9.46%, and Ethereum ETH/USD+9.76% trading up by about 8%.

Other major cryptocurrencies like Binance BNB/USD+4.60% and USD Coin USDC/USD+2.87% shot up about 4% following the announcement.

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