The U.S. Department of the Treasury (the “Treasury”), the Board of Governors of the Federal Reserve System (the “FRB”) and the Federal Deposit Insurance Corporation (the “FDIC” and collectively with the Treasury and the FRB, the “Agencies”) took several actions on March 12, 2023 in an effort to contain the fallout from the recent failure of two insured depository institutions. Those actions are noted below.

1. Deposits.  Utilizing the “systemic risk exception” under the Federal Deposit Insurance Act, the Agencies announced that depositors of both failed banks will have access to the full amount of their deposits, whether or not they were insured, beginning Monday, March 13, 2023.

2. Emergency Bank Term Funding Program. Simultaneously, the FRB announced the establishment of the Bank Term Funding Program (the “BTFP”), which will offer loans of up to one (1) year in length to eligible depository institutions and U.S. branches of agencies of foreign banks that pledge qualifying assets as collateral. The BTFP’s purpose is to provide liquidity to U.S. depository institutions, which may be facing increasing withdrawals by depositors.  A summary of the BTFP’s terms are provided below. 

   • Borrower Eligibility: Eligible borrowers include any U.S. federally insured depository institution (including a bank, savings association or credit union) or a U.S. branch or agency of a foreign bank that is eligible for primary credit under the FRB’s discount window. Depository institutions that are eligible for primary credit under the discount window are institutions that are deemed to be in “generally sound financial condition” by the applicable Federal Reserve Bank.

   • Eligible Collateral.  Eligible collateral includes any collateral eligible for purchase by the FRB in open market operations, provided that such collateral was owned by the borrower as of March 12, 2023. This collateral generally includes direct obligations of, and obligations fully guaranteed as to principal and interest by, the United States, such as U.S. Treasuries, and agency debt and mortgage-backed securities.

   • Collateral Valuation: The collateral valuation will be par value. The margin will be 100% of par value.

   • Advance Size; Aggregate Borrowings: Advances will be limited to the value of eligible collateral pledged by the eligible borrower; however, there is no cap on the total amount of extensions of credit that an institution may obtain.

   • Rate: The rate will be a one-year overnight index swap rate plus 10 basis points; the rate will be fixed for the term of the advance on the day the advance is made.

   • Prepayment: Borrowers may prepay advances, including for purposes of refinancing, at any time without penalty.  

   • Advance Term and Fees: Advances will be made available to eligible borrowers for a term of up to one year. There are no fees associated with the BTFP.

   • Credit Protection by the Department of the Treasury: The Treasury, using the Exchange Stabilization Fund, will provide $25 billion as credit protection to the Federal Reserve Banks in connection with the BTFP.

   • Recourse: Advances under the BTFP are made with recourse beyond the pledged collateral to the eligible borrower.

   • How to Access the BTFP:  A depository institution should contact its Federal Reserve Bank to request an advance under the BTFP.  To obtain an advance, eligible borrowers must submit a request using a standard template email to its Federal Reserve Bank.  The template email is available here. Also, if a depository institution has not previously agreed to the terms of the applicable Federal Reserve Bank’s Operating Circular No. 10, the depository institution will be required to provide the applicable documentation relating to Operating Circular No. 10.

   • BTFP Duration: Advances can be requested under the BTFP until at least March 11, 2024.

The BTFP term sheet can be found here and the BTFP’s Frequently Asked Question can be found here.