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Banks funding challenge

One of the first challenges of the year will be what will happen to the Bank Term Funding Program (BTFP), created by the Federal Reserve to assist Banks after the collapse of #svb on March 12, 2023, and that it’s supposed to end on March this year. As you can see in the chart below, small banks are still suffering: cash reserves are going down even after the asistance of the program (blue line) but more importantly, if it wasn’t for for the #btfp program they would have probably been out of business (red line). The March FOMC committee is in March 20th, almost a week after the maturity of the assistance program. The irony here is that the Fed conducts an annual stress test on banks (typically a selection) and even after the creation of #btfp the results were “satisfactory”. A big percentage of the loans granted by small banks on 2023 were funded through #btfp. And depositors still prefer T-bills and money market funds to bank deposits. If the Fed extends the program, it will be difficult to pass the stress test; if it terminates it, what will happen to banks? Is that the spark they need to start #ratecuts?


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