Bank Term Funding Program: Definition, Why It Was Created
What Was the Bank Term Funding Program (BTFP)?
The Bank Term Funding Program (BTFP) was a temporary emergency lending facility launched by the Federal Reserve in March 2023 to stabilize the U.S. banking system following the sudden collapses of Silicon Valley Bank and Signature Bank the largest bank failures since 2008.
Here’s what the program did:
- Purpose: To provide liquidity support to U.S. depository institutions and reassure depositors—including businesses and households—that banks could meet withdrawal demands.
- Eligibility: U.S. banks, savings associations, credit unions, and U.S. branches of foreign banks.
- Loan Terms: Offered one-year loans backed by high-quality collateral such as U.S. Treasuries, agency debt, and mortgage-backed securities (MBS).
- Rate Structure: Loans were issued at a fixed rate—the one-year overnight index swap rate plus 10 basis points.
- No Fees: Participation in the program came with no fees.
- Treasury Backstop: The U.S. Treasury provided $25 billion in credit protection via the Exchange Stabilization Fund (ESF).
- End Date: The program ceased new lending on March 11, 2024, as originally planned.
The BTFP was designed to prevent further bank runs, restore confidence in the financial system, and ensure that banks had access to short-term funding without needing to sell assets at a loss during periods of market stress.
- Emergency Liquidity Support: The Bank Term Funding Program (BTFP) was launched by the Federal Reserve in March 2023 to provide short-term funding to eligible U.S. depository institutions during a banking crisis.
- Crisis Response: It was created in direct response to the failures of Signature Bank and Silicon Valley Bank, aiming to prevent further bank runs and stabilize the financial system.
- Loan Terms: The program offered one-year loans to banks, credit unions, and savings associations that pledged U.S. Treasuries, agency debt, mortgage-backed securities (MBS), and other qualifying assets as collateral.
- Fixed Rate, No Fees: Advances were issued at a fixed interest rate (one-year OIS + 10 basis points), and participation came with no fees.
- Temporary Measure: The BTFP was designed as a one-year emergency program and officially ceased new lending on March 11, 2024.
Key Takeaways
In March 2023, the sudden failures of Silicon Valley Bank and Signature Bank triggered widespread panic in the U.S. financial sector. Both institutions faced massive bank runs, as depositors rushed to withdraw funds. The banks lacked sufficient liquid assets to meet these demands, forcing them to sell U.S. Treasury securities at a loss since rising interest rates had depressed bond prices in the secondary market.
The crisis was amplified by social media, and with many deposit accounts exceeding the FDIC’s $250,000 insurance limit, confidence eroded rapidly. To contain the fallout, the Federal Reserve launched the Bank Term Funding Program (BTFP) a temporary emergency facility designed to provide liquidity support to eligible U.S. depository institutions.
Key features of the BTFP included:
- Eligibility: U.S. federally insured banks, savings associations, credit unions, and U.S. branches of foreign banks.
- Collateral: U.S. Treasuries, agency debt, mortgage-backed securities (MBS), and other assets eligible for Fed open market operations.
- Loan Terms: Advances of up to one year, issued at a fixed rate—the one-year overnight index swap rate plus 10 basis points.
- Advance Limits: Loans were capped by the value of pledged collateral.
- Program Duration: The BTFP stopped accepting new loan requests on March 11, 2024.
The program helped stabilize the banking system by ensuring institutions could meet depositor demands without selling assets at distressed prices.
To reinforce the Bank Term Funding Program (BTFP), the U.S. Department of the Treasury allocated $25 billion in credit protection to the Federal Reserve Banks. This support came from the Exchange Stabilization Fund (ESF) a reserve maintained by the Treasury to safeguard financial stability during emergencies.
The ESF backstop ensured that any potential losses from BTFP lending would be absorbed without disrupting broader monetary operations, giving banks and depositors greater confidence in the program’s reliability.
BTFP vs. Primary Credit Lending: Two Fed Tools for Bank Liquidity
The Bank Term Funding Program (BTFP) and Primary Credit Lending are both emergency liquidity tools created by the Federal Reserve, but they differ in structure, purpose, and duration. The BTFP was introduced in March 2023 as a temporary response to the sudden failures of Silicon Valley Bank and Signature Bank.
It offered one-year loans to a broad range of eligible institutions including banks, savings associations, credit unions, and U.S. branches of foreign banks that pledged high-quality collateral such as U.S. Treasuries, agency debt, and mortgage-backed securities. The interest rate for BTFP loans was fixed at the one-year overnight index swap rate plus 10 basis points, and the program ceased issuing new loans on March 11, 2024.
In contrast, the Primary Credit Lending program is a standing facility that provides overnight loans to depository institutions in generally sound financial condition. It serves as the Federal Reserve’s principal safety valve for short-term liquidity needs. Unlike BTFP, primary credit is priced relative to the Federal Open Market Committee’s target range for the federal funds rate and is granted on a no-questions-asked basis with minimal administrative oversight.
There are no restrictions on how institutions use the borrowed funds, making it a flexible and ongoing support mechanism for the banking system.
How Can a Bank Request a Loan Under the BTFP?
Banks can no longer request loans under the Bank Term Funding Program (BTFP). The program officially ceased new lending on March 11, 2024, as originally planned. It was designed as a temporary emergency measure to stabilize the banking system following the collapses of Silicon Valley Bank and Signature Bank in March 2023.
While existing loans under the BTFP continue to be serviced, institutions seeking liquidity must now rely on other standing facilities such as the Primary Credit Lending program, which remains active and accessible to eligible depository institutions.
Were There Any Fees to Participate in the BTFP?
No there were no fees associated with participating in the Bank Term Funding Program (BTFP). The Federal Reserve designed the program to provide rapid, low-cost liquidity to eligible depository institutions during a period of financial stress. By eliminating participation fees, the Fed ensured that banks could access funding without additional cost barriers, helping stabilize the system after the collapses of Silicon Valley Bank and Signature Bank.
Is the BTFP Rate Publicly Available?
Yes. The Bank Term Funding Program (BTFP) rate for existing loans is updated daily and published on the Federal Reserve’s Discount Window website. This transparency allows market participants and financial institutions to monitor the cost of term advances issued under the program, even after it stopped accepting new loan requests on March 11, 2024.
The Bottom Line
The Bank Term Funding Program (BTFP) was a temporary emergency lending facility launched by the Federal Reserve in March 2023 to stabilize the banking system after the sudden failures of Silicon Valley Bank and Signature Bank. Its primary goal was to protect American depositors by ensuring that eligible financial institutions had access to short-term liquidity during a period of market stress.
The program offered one-year loans to banks, credit unions, and savings associations that pledged high-quality collateral including U.S. Treasuries and other assets eligible for Fed open market operations. Loans were issued at a fixed interest rate (one-year OIS + 10 basis points), and no fees were charged to participate. As planned, the BTFP ceased new lending on March 11, 2024, marking the end of its one-year emergency window.
