The March 11 Disaster: Why Your Bank Account May Not Survive

The Federal Reserve’s Bank Term Funding Program (BTFP) will sunset as planned on March 11, ending a program that helped calm the markets after last year’s collapses of Silicon Valley Bank and Signature Bank threatened a broader financial crisis.

Motivated by concerns of potential spillover effects following these social media-fueled bank runs, the Federal Reserve created the BTFP to provide an additional source of liquidity for eligible depository institutions to meet the needs of their depositors.

In a news release on the BTFP issued January 24, the Federal Reserve confirmed the program will continue to issue loans until March 11; then, banks and other depository institutions will have access to the discount window to meet liquidity needs during times of stress.

The Federal Reserve also announced a rate hike on new loans for the remaining BTFP term, saying “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 pricing change was effective immediately, closing an arbitrage opportunity that emerged for U.S. banks. Before the change, pricing was tied to market expectations for benchmark interest rates average over the next year. As investors started to price in a series of rate cuts for 2024, borrowing costs for BTFP loans dipped below the interest payable on overnight deposits.

All other terms of the program are unchanged.

This article originally appeared on JD Supra