Key Points:
- The U.S. Federal Reserve (FED) has announced a $25 billion grant to support banks and other depository firms.
- The bailout package was launched when significant banks, including Silicon Valley Bank, Silvergate Bank, and Signature Bank, had to close because of the crisis.
- The market was filled with green after the announcement. Bitcoin increased by nearly 9% in 24 hours.
In the face of the risk of some central banks in the U.S. collapsing (Silvergate, Silicon Valley Bank, or most recently, Signature Bank was closed), the U.S. Federal Reserve (FED) has announced a support amount of $25 billion to support banks and other depository companies.
This amount of funds will ensure that banks have enough liquidity to meet the withdrawal needs of customers during such turbulent times.
In a statement on March 12, the $25 billion was named the Bank Term Funding Program, which provides loans with terms of up to one year to “banks, savings associations, credit unions, and other qualified depository institutions”.
Companies wanting to qualify for the program must pledge U.S. Treasuries, agency debt, and mortgage-backed securities or other “qualifying assets” as collateral. These assets will be priced at “par” – the price at which the asset was originally issued.
The Fed added that this would be an additional source of liquidity for high-quality securities, removing the need for an institution to quickly sell those securities to meet liquidity in times of stress.
This decision was made in the context of SVB Bank’s announcement on March 8 that it needed to sell a large number of assets and shares to raise more capital, which scared many depositors and created risks of a “bank run.” After that, SVB had to close, leading to the depeg of a series of significant stablecoins on the market, typically USDC issued by Circle when Circle was also an organization stuck with money on SVB.
The program debuted the same day the Federal Reserve reported that Treasury Secretary Janey Yellen had authorized measures enabling the FDIC to protect depositors’ interests adequately. At the same time, regulators had closed on the grounds of systemic risk, Signature Bank.
These actions will reduce stress throughout the financial system, support financial stability, and mitigate any impact on businesses, households, taxpayers, and the broader economy.
Immediately after the announcement of the Fed, the cryptocurrency market came to life again in the green. Bitcoin recovered to the $22,000 mark, having increased by nearly 9% in the past 24 hours.
DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
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