Following the FDIC’s actions on Friday to place Silicon Valley Bank (“SVB”) in receivership, the Department of the Treasury, the FDIC, and the Federal Reserve announced several measures on Sunday, March 12, 2023 aimed at avoiding contagion in the banking sector and protecting depositors.
SVB Depositors Will Be Made Whole: Pursuant to a systemic risk exception for SVB, depositors of SVB will be made whole and depositors will have access to all of their money starting Monday, March 13.
Closure of Signature Bank; Depositors Will Be Made Whole: Signature Bank of New York, New York, was closed by its state chartering authority. A similar systemic risk exception was made for Signature Bank, and as a result, all depositors of Signature Bank will also be made whole.
Creation of Bank Term Funding Program: The Federal Reserve has created a new Bank Term Funding Program (“BTFP”). This program will provide loans of up to one year in length to banks, credit unions, and other eligible depository institutions that pledge qualifying assets as collateral (including U.S. Treasuries, agency debt, and mortgage-backed securities). The collateral will be valued at par. This is intended to eliminate the need for institutions to sell securities quickly at unfavorable prices in order to obtain liquidity. The Department of the Treasury will make available up to $25 billion from the Exchange Stabilization Fund to backstop the BFTP. The Federal Reserve indicated that it does not believe it will be necessary to draw on these funds, but such funds will be available with the authorization of Treasury Secretary Janet Yellen.
Discount Window Remains Open: The Federal Reserve discount window, which lends money to depository institutions secured by a wide range of collateral, remains open and will apply the same margins used for the securities eligible for the BTFP. According to the press release, this will increase lendable value at the window.
No Losses to Be Borne by Taxpayers: The losses associated with the resolutions of SVB and Signature Bank will not be borne by taxpayers. Any losses to the Deposit Insurance Fund to support these resolutions will be recovered by a special assessment on banks.
The joint press release issued by the FDIC and Federal Reserve is available here.
The press release issued by the Federal Reserve is available here.
A term sheet for the BTFP is available here.