US Federal Reserve Introduces $25B Package for Struggling Banks
Following the collapse of several financial institutions in the United States, the US Federal Reserve has introduced a $25 billion package to support the struggling banks. The program, known as the Bank Term Financing Program (BTFP), will provide eligible banks, savings organizations, credit unions, and other qualifying depository institutions access to sufficient liquidity to meet the needs of their customers even during times of market stress. The BTFP initiative aims to strike a balance between those who want broad and immediate intervention and those who oppose overreaction.
To be eligible for the program, businesses must pledge "qualifying assets," which are defined as U.S. Treasuries, agency debt, mortgage-backed securities, or other assets valued at the original issue price.
The announcement of the BTFP came after Silicon Valley Bank (SVB) declared a significant sale of assets and stocks to raise capital, causing panic among depositors and resulting in a run on the bank. The situation was further aggravated when Circle, a stablecoin issuer, revealed that it held $3.3 billion in SVB. This disclosure triggered greater panic, and in response to the bank run, Circle released its own stablecoin, USD Coin (USDC).
On the same day that authorities in New York shut down Signature Bank due to systemic risk, the US Federal Reserve announced the new initiative. The Federal Reserve Board also confirmed that U.S. Treasury Secretary Janet Yellen had authorized the Federal Deposit Insurance Corporation (FDIC) to compensate SVB depositors.
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