Silicon Valley Bank, in response to deposit outflows, sold a significant portion of its securities portfolio at a loss. That loss, coupled with the announcement of a need to raise replacement capital, triggered an old-fashioned run on deposits. As part of the federal response to that failure and the failure of Signature Bank, the Board of Governors of the Federal Reserve System instituted its Bank Term Funding Program (Program) to make available additional funding to eligible depository institutions to assist in meeting the needs of depositors. The Program offers loans of up to one year in length to eligible financial institutions pledging US Treasuries, agency debt, mortgage-backed securities, and other qualifying assets as collateral. Importantly, these assets will be valued at par rather than at the current market value, which is likely below par, providing liquidity and eliminating an institution’s need to sell those securities at a loss. Under 12 CFR 201.4(a), a Federal Reserve Bank may extend primary credit under the main discount window lending program to a depository institution that is in generally sound financial condition in the judgment of the Reserve Bank. This is the standard for borrower eligibility under the Program. Continue reading >