Federal Reserve Publishes Further Details and Instructions for the Bank Term Funding Program

March 16, 2023

On Monday, the Federal Reserve released additional details about the Bank Term Funding Program (BTFP).

The Federal Reserve authorized all twelve Reserve Banks to establish the BTFP to make funding available to eligible depository institutions to provide additional liquidity and eliminate the need for banks to quickly sell securities in a time of stress.  The BTFP is authorized pursuant to Section 13(3) of the Federal Reserve Act and supported by a $25 billion backstop from the Exchange Stabilization Fund approved by the Treasury Secretary.

The facility will offer loans of up to one year in length to eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral.  Importantly, the BFTP values qualifying collateral at par, eliminating the haircut that institutions might face if they sought to sell securities on the open market.

Key terms of the BFTP include:

  • Borrower eligibility:  Any U.S. federally insured depository institution (including a bank, savings association, or credit union) or U.S. branch or agency of a foreign bank that is eligible for primary credit.
    • Eligible borrowers that have discount window borrowing documentation in place under the Federal Reserve Banks’ Operating Circular No 10 (Lending) will be able to borrow from the BTFP immediately.  Institutions without documentation in place should contact their district Federal Reserve Bank regarding documentation requirements.
    • Institutions do not need a master account with a Federal Reserve Bank in order to borrow, but if they do not, they must have a correspondent relationship with an institution that does.
  • Eligible Collateral:  Any collateral eligible for purchase by the Federal Reserve Banks in open market operations (see 12 C.F.R. § 201.108(b)), provided that such collateral was owned by the borrower as of March 12, 2023.
    • This includes U.S. Treasuries, agency debt and mortgage-backed securities, and other direct obligations of, and obligations fully guaranteed as to principal and interest by, the United States or an agency of the United States.
    • Collateral will be pledged using the Fedwire Securities Service, pursuant to instructions posted here.
    • Eligible collateral already pledged to the discount window may be used in the BTFP.
  • Collateral Valuation:  Par value or equal to the outstanding face amount. Margin will be 100% of par value, with no haircuts applied.
  • Advance Size:  Up to par value of the eligible collateral pledged.
  • Rate:  One-year overnight index swap rate plus 10 basis points, fixed for the term of the advance on the day the advance is made. The rate will be updated daily and posted here.
  • Term:  Up to one year.
  • Recourse:  Advances will be made with recourse to the eligible borrower beyond the pledged collateral.
  • Program Duration: Advances can be requested until at least March 11, 2024.
  • Process:  Borrowers must submit a request using the standard email template provided by the Federal Reserve, located here, to their District’s Federal Reserve Bank the first time the borrow under the program.  The template provides that all advances will be governed by Operating Circular No 10 and the terms of the BTFP as specified by the Federal Reserve from time to time. 
  • Public Disclosure:  The Federal Reserve will publish aggregate balance sheet items related to the BTFP on a weekly basis on the H.4.1 statistical release, “Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks.”  One year after the program ends, the Federal Reserve will publicly disclose information, including the names and identifying details of each participant, the amount borrowed, the interest rate or discount paid, and information concerning the types and amounts of collateral pledged or assets transferred in connection with participation in the BTFP.

The Federal Reserve also announced that margins for the discount window will be set at the same margins used for securities eligible for the BTFP, “further increasing lendable value at the window.”  Other collateral eligible for primary credit at the discount window but not open market operations (which includes a wide range of securities and loans) will remain subject to a haircut in discount window borrowing.

For additional information, please see:

  • Federal Reserve Bank Term Funding Program FAQs (link)
  • Federal Reserve Bank BTFP Landing Page (link)