USA Banking - is the crisis over?
The Bank Term Funding Program (BTFP)
The Bank Term Funding Program (BTFP) was created to support American businesses and households by making additional funding available to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors. The BTFP offers loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging any collateral eligible for purchase by the Federal Reserve Banks in open market operations (see 12 CFR 201.108(b)), such as U.S. Treasuries, U.S. agency securities, and U.S. agency mortgage-backed securities. These assets will be valued at par. The BTFP is an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.
From the BTF Program update on 11 Jan 2024:
Update. As of December 31, 2023:1 • The total outstanding amount of all advances under the BTFP was $129,178,287,000. • The total value of the collateral pledged to secure outstanding advances was $169,281,823,000. In addition, the Department of the Treasury is providing $25 billion as credit protection to the Reserve Banks.
From the BTF Program update on 11 Dec 2023:
Update. As of November 30, 2023: 1 • The total outstanding amount of all advances under the BTFP was $114,041,296,000. • The total value of the collateral pledged to secure outstanding advances was $150,128,553,000. In addition, the Department of the Treasury is providing $25 billion as credit protection to the Reserve Banks.
Observations
Between Nov 2023 and Dec 2023, the total outstanding amount of all advances grew by 13.27%.
Between Nov 2023 and Dec 2023, the total value of collateral pledged (to secure outstanding advances) grew by 12.76%.
From the 11 reports (nearly 1 year since the start of BTFP), we see a monthly average of $11.743B loan dispersed under the advances.
There is an upward trend of banks requiring the BTFP. Why is there a growing need to “assure banks can meet the needs of all their depositors”?
Bloomberg has a 23rd Dec 2023 news article that spoke about the expiring of this program in Mar 2024.
This is an extract from the news:
The growing gap between the rate on the Federal Reserve’s nascent funding facility and what the central bank pays institutions parking reserves suggests officials will let the program expire in March, according to Wrightson ICAP.
The above is from the BTFP website.
What would be the consequence of the end of BTFP especially when banks continue to draw from this program?
New York Community Bancorp
The Stock fell 37% after earnings.
The above is taken from Twitter user The Kobeissi Letter.
With a Q4 loss of $260M (instead of profits of similar size) and a 70% cut of dividends, the stock plummeted.
The shadows of SVB and FRB are back to taunt the market.
Banking
Many of these small banks like NYCB hold huge exposure to commercial real estate (CRE) loans. 70% of all CRE loans are held by small banks. More default and delinquency in the CRE can lead to strains on the banking sector.
The banking crisis is not over, it has simply quietened over time. Let us continue to manage our risks accordingly.
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- keke006·02-01TOPAgree. Risk management is crucial. $NYCB$1Report