The Fed (Federal Reserve), the US Treasury, and the FCDI (Federal Credit Insurance Corporation) announced this Sunday (Mar. 12) the creation of a new Bank Term Funding Program.
According to a statement, the measure will ensure financial institutions’ ability to pay their depositors.
The Treasury Department will make available up to US$25 billion from the Exchange Stabilization Fund for this purpose.
The new funding for banks, credit unions, and other eligible depository institutions will last up to 1 year.
In return, these financial institutions must pledge U.S. Treasury securities, agency debt, mortgage-backed securities, or other qualifying assets.
“This action will strengthen the banking system’s ability to safeguard deposits and ensure the continued availability of cash and credit to the economy,” an excerpt reads.
The decision was made after Silicon Valley Bank (SVB) and Signature Bank went bankrupt. The Fed is “prepared to deal with any liquidity pressures that may arise.”
US financial regulators on Sunday shut down New York-based Signature Bank, a significant lender to the cryptocurrency sector, to prevent a spreading banking crisis.
This is the second bank failure in the past three days, with Silicon Valley Bank (SVB) closing on Friday.
According to the US media, the bankruptcy of Signature Bank is the third largest in the history of US banking, after Washington Mutual Bank (2008) and SVB.
Signature Bank had assets of US$110.36 billion at the end of last year’s deposits – US$88.59 billion control was taken over by the Federal Deposit Insurance Corporation (FDIC).
The FDIC set up a receiver bank on Sunday to give customers access to their funds on Monday.
According to the FDIC, Signature Bank depositors and borrowers will automatically become customers of the temporary bank.
Banking regulators said customers would get all their deposits back, including money above the US$250,000 federal deposit insurance limit.