I was asked about the Bank Term Funding Program (BTFP) to provide Liquidity to Depository Institutions. Let’s check it out. 
What is the BTFP?
The St. Louis Fed says the Bank Term Funding Program Provides Liquidity to Depository Institutions
On March 12, the Federal Reserve launched the Bank Term Funding Program (BTFP), a lending program for eligible depository institutions—banks, savings banks and credit unions—experiencing liquidity issues. The goals of the BTFP are to bolster institutions’ capacity to safeguard deposits and ensure the ongoing provision of credit to communities and the broader economy.
Use of the BTFP reduces the need for an institution to quickly sell securities, perhaps at a loss, in times of stress.
The Fed started the BTFP program in the wake of the collapse of Silicon Valley Bank.
Small regional banks overleveraged in long term treasuries and were clobbered by paper losses and then bank runs.
In response, the Fed agreed to shield the banks from losses by offering swaps at par value, ignoring the losses.
BTFP Terms
- Eligible Collateral—Direct obligations of certain U.S. government agencies, including the U.S. Department of the Treasury, government-sponsored enterprises such as Fannie Mae and Freddie Mac, and the Federal Home Loan Banks. In addition, mortgage-backed securities issued and/or fully guaranteed by Ginnie Mae, Fannie Mae and Freddie Mac are eligible.
- Loan Terms—Institutions may borrow up to the value of eligible collateral pledged. Collateral is valued at par, i.e., with no haircuts. Loans can be prepaid at any time without penalty. The rate is fixed for the life of the loan (up to one year) and is calculated by adding 10 basis points to the overnight index swap rate. The rate is published daily on the Discount Window website. Advances will be available until March 11, 2024, or longer if the program is extended.
How is Collateral Valued?
The collateral valuation will be par value or equal to the outstanding face amount. Margin will be 100% of par value. There will be no haircuts applied.
Fed’s Balance Sheet
To put the things into proper perspective, the Fed’s balance sheet still over $8 trillion, down from $8.97 trillion on April 13, 2022.
This reduction of the Fed’s Balance Sheet on published schedules is called Quantitative Tightening (QT) and is going according to planned schedule for Treasuries but not Mortgage Backed Securities.
The BTFP is about $108 billion with a small increase since June of 2023.
Hiding Losses
Banks that needed to hide unrealized losses have mostly already done so.
Losses on Treasuries is a problem of the Fed’s making by encouraging speculation for over a decade. Topping it off, Quantitative Easing (QE) more than doubled since 2020.
Liquidity, Not Solvency Issue
This is a liquidity issue, not a solvency issue. The US is not going to default and the treasuries are not worthless. The Fed wanted to stop bank runs and did so by a method that hides losses.
However, the paper losses are still real, even if hidden in reports. This has an impact on banks willingness to make loans in a rising interest rate environment.
Small Business Bankruptcies Surge in 2023, Five Reasons Why
Meanwhile Small Business Bankruptcies Surge in 2023.
Nearly 1,500 small businesses filed for Subchapter V bankruptcy this year through Sept. 28, nearly as many as in all of 2022, according to the American Bankruptcy Institute.
The Fed can paper over bank losses on Treasuries and mortgages, but it cannot do anything about realized losses on bankruptcies and commercial real estate.
That is where the big problems remain.
The UNIPARTY, aided by the Fed, is getting louder and louder.
It has to get VERY raucous and then the Cops are called. OH, wait a minute, the party-goer’s ARE the Cops.
HMMMM….
Nailed it.
More centralized, unelected authoritarians spending my money, determining my future, without any consent of the People. Crooked, wicked, and should be illegal wirthout any legislative or judicial oversight. Do you get it yet?
5yr, 10yr, 30yr Tsy rates going up like crazy!
I have some 3.10% CDs that will mature on Feb 01 that I want to get into 4yr and 5yr CDs. Getting very nervous now. What if there is a stock-market/housing-market crash and the high Tsy yields vanish because of the rush to so-called quality??!!
On pins and needles, wondering whether to let the CDs mature or pull them out and pay the penalty (90 days’ worth of interest).
I’d pull them if you are asking and buy new ones. Nothing is saying it’s going down. Probably not a crash. Housing is more regional. The market crashing in an election cycle with all the 3 letter agencies and companies in your corner? Highly unlikely. They will pump it until the bitter end.
Why not open a account at treasurydirect buy 4 week t-bills , they will send the interest to your Bank… that way if the banks have issues you don’t
I was told by an advisor to stay away from bonds a little over a year ago. I ignored him. Moved chips over to bonds and some of it in property. Sometimes you just have to go with your gut but it wasn’t even my gut. Weaponizing the dollar was a horrible course of action. How was that going to work out exactly? Piss off a bunch of folks that own a chunk of your debt..meh.
Eight republicans joined radical democrats, under Hakeem Jeffery, to oust McC, a moderate.
uniparty. you have been had if you are still playing on the D v R cheerleading squad. hope you are wearing proper red or blue panties………when you kick up your legs and pom poms.
Well the system may be broken now. Still better than ehat will happen when it fails.
So as Treasury rates increase, and the value of those bonds drops substantially, the bank can borrow 100% against the face value? Rates went up big today, and will probably continue, meaning the BTFP will be loaning more money to banks to make this Ponzi scheme go a little further. At some point something is going to break in a big way.
Things will break but not because of this Fed program, rather despite it
1) The regional banks and small businesses plunged. IWM (C) @171.14.
Confused, skip :
2) IWM 1W : L1 is a downtrend line coming from 2018 to 2020 highs. L1 was
breached, but there was no close < L1.
3) IWM looks like a bearish triangle. IWM might plunge under L1.
4) 1W : Oct 2 is DM #9. IWM might turn around.
5) IWM 1D : IWM Anti BB is May 12/17 2022, 168.90/182.84.
6) IWM might close May 4/5 2023 gap 170.40/173.29, and breach the Anti from below.
7) Dow 1D : it closed June 1/2 2023 gap. 0.88 above May 25 2023 low.
The banking system is collapsing, starting with the small banks …
Yet another manipulation to keep the fugazi rolling.
On a macro level, savers never transfer their savings outside the banks, unless they are hoarding currency or convert to another national currency, e.g., FDI.
…
Unlike the nonbanks, the commercial banks (as a system) suffer no disintermediation when savers decide to shift their savings to another type of investment. Shifting from time deposits in the commercial banks to nonbank types of investments has no effect on the total assets or the volume of earning assets of the commercial banks. It merely involves a transfer in the ownership of pre-existing deposit liabilities, from time to demand deposits within the payment’s System.
Excessive competition for deposits was originally curtailed by Regulation Q ceilings.
Spencer, the riddle of Philip George.
The Fed didn’t invent speculation, the market did. And it speculates when markets are glutted long term, then profit rates fall and the games begin. If the Fed and other central banks don’t facilitate the games, then they are shown the door. No Fed has ever called the party over for the markets.
The party isn’t over except when they initiate the bust phase for the party goers.
“The Fed can paper over bank losses on Treasuries and mortgages, but it cannot do anything about realized losses on bankruptcies and commercial real estate.”
Why would The Fed need to, when it can prevent, or contain, realised losses to it’s heart’s content by printing more money, bailing out all comers and (still credibly) de facto promise to bail out any well connected, entirely Fed dependent, dunce from the “asset” classes?
As long as the benefactors of The Fed’s redistribution-by-asset-pumping programs believe The Fed has their back, The Fed can sit back and pretend some guy named “the market” is who is buying all the overpriced junk.
All The Fed has to do is step in very occasionally, to clearly demonstrate that any asset-channel-welfare-recipient who does not do what is “expected” of him in exchange for all his wealth and privileges, will simply end up having foregone another “buying opportunity”, aka another opportunity to have more wealth transferred from others to himself by Fed action. The Fed’s welfare recipients, along with hangers on, groupies and the mass of other illiterate rah-rah-ists, can be counted on to do the rest.
The only endgame, is destruction of the currency. That is the only realistic limit on the scale of The Fed’s redistributive powers. Hence, the sooner that becomes reality, the better off America is.
USTreasuries have a solid nominal value. Inflation adjusted future value is worthless. The prices I pay doubled over only two years. Hyper inflation has not been addressed or acknowledged.
After many years of waiting for the overindebted system to blow up, just let us know when its all gonna come crashing down, so we can make proper plans for the weekend. 🙂
With Treasurys paying over 5% and banks paying 0.1% interest, only the absolute dunces in society aren’t taking advantage of this situation but I think it’s catching on.
There’s an old joke, “when the shoe shine kid is telling you to invest in stocks, it’s probably time to get out of stocks.”
We aren’t at a point where the shoe shine kid is telling people to buy bonds but we will eventually get there and when that happens, there will be a huge sucking sound from bank deposits over to Treasurys and we’re off to the bank runs. It’s why I’m starting to position on the long bond end.
Got T-bills?
So this is how government deficit spending ruins the show? By hogging up the loan window at banks?
What happens to long-duration Bonds (10’s, 30’s) if the FED raises four or more times in the near future, 2024, 2025?
Askin’ for a friend.
actually, the slow pace of QT and raising short term rates is what has allowed this economy to continue to chug along and has devastated long term bonds. the faster they raise short term rates, the fast the economy falls apart and then long term bonds would stop rising and fall.
the much smarter way to have killed inflation would have been to start by selling the bonds and MBS. push it back into the market. that would have driven up long term rates much earlier. At this point they could have already been down to 6 trillion in assets on the balance sheet, which would have been much smarter way to go.
the Fed is the most incompetent bunch of idiots on the planet. any kid in economics class could have done a better job because the kid would not have the gall to believe it could ignore basic economic theories. only a true dunce would ever believe MMT.
Vote for RFK jr. he is already talking about ending the Fed. Sign up for his newsletter, it is the only dose of reality and truth you will get. Even if he is wrong about a few things, he is right about 99% of the stuff.
Bank losses are much much worse now than in June. Another crisis coming I think.
The problem with papering over those losses is that those are not short term losses, they extend for many many years. If the economy truly does go into a funk those banks look even more underwater and investors and depositors will start bank runs anyway. Plus, those banks must pay out interest on loans at a high rate that they cant even generate by selling loans.