The Fed launches a new program for banks - markets in euphoria

The Federal Reserve Board announced last night that it will make additional funds available to qualifying depository institutions to help banks meet the needs of all their depositors.

This action will strengthen the ability of the banking system to protect deposits and ensure a continuous supply of money and credit to the economy.

The Federal Reserve is prepared for possible liquidity pressures that may arise, we read in the communiqué.

New Fed program - BTFP

Funding will be made available through the creation of a new bank term funding program (Bank Term Funding Program – BTFP), under which banks, savings associations, credit unions and other eligible depository institutions will be granted loans for up to one year against U.S. Treasury, agency and mortgage-backed securities and other eligible assets. These assets will be valued at their nominal value.

BTFP will be an additional source of liquidity in relation to high-quality securities, eliminating the need for institutions to sell these securities quickly in crisis situations.

With the Treasury Secretary's approval, the Treasury Department will make available up to $25 billion from the Stock Stabilization Fund as collateral for the BTFP. The Federal Reserve does not anticipate the use of these hedge funds.

After receiving recommendations from the boards of the Federal Deposit Insurance Corporation (FDIC) and Federal Reserve, Secretary of the Treasury Yellen, after consulting with the President, approved actions allowing the FDIC to complete its corrective action against Silicon Valley Bank in a way that fully protects all depositors, both insured and uninsured. These actions will reduce stresses on the entire financial system, support financial stability and minimize any impact on businesses, households, taxpayers and the economy as a whole.

The Council is closely monitoring developments in the financial markets. The capital and liquidity positions of the US banking system are strong and the US financial system is resilient, it added.

The Board is closely monitoring conditions across the financial system and stands ready to use its full range of tools to support households and businesses, and will take additional steps if necessary.

Markets in euphoria. Nasdaq and cryptocurrencies are up, the dollar is down

Investors breathed a sigh of relief as troubled banks will be able to obtain additional liquidity if they need to make payouts to their clients by pledging securities, rather than selling them on the market as was the case with SVB. So with one very simple operation, a collateral loan, the panic that was emerging this weekend was allayed.

contracts for Nasdaq xnumx are growing by more than 2 percent, and fut. on the S&P 500, it is up more than 1,7 percent. Cryptocurrencies, which were also under pressure over the weekend due to the fact that the issuer USDC Circle, which held some funds in SVB, also gains. Bitcoin it costs close to USD 22500 and ETH USD 1600.

The US dollar fell quickly overnight as risk appetite may have returned, but in addition, the chances of further strong monetary policy tightening by the Fed diminished.

This can be summed up in the fact that investors felt that even if problems arise due to too high interest rates, the Fed and the government will "think of something" and the risk will be minimized.