March 2023 Archives

It seems that most conservatives are calling the new Bank Term Funding Program a "bailout" for the rich, but as far as I can tell preventing a contagious bank-run is good for everyone. Shareholders and bondholders of any failed banks are not being guaranteed in anyway, only depositors (i.e., bank customers).

The additional funding will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution's need to quickly sell those securities in times of stress.

Silicon Valley Bank and Signature Bank are being "resolved" and shareholders are being wiped out. Bondholders will probably get some of their money back, but they won't be made whole. Depositors will be fully protected. Bank runs are caused by depositors panicking and withdrawing their money, so the BTFP should be sufficient to forestall that catastrophe without "bailing out" banks using taxpayer dollars. I guess we'll find out.

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