Monday’s announcement by the Fed of the Bank Term Funding Program was made at the Marriner S. Eccles Federal Reserve Building in Washington, D.C. The Federal Reserve has pledged to make loans ranging from 90 days to 12 month in duration. There are no minimum or maximum borrowing amounts.The effort aims to “bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy,” the Fed said in a press release.Operationally, the program is relatively simple: In exchange for funding, banks and other prospective borrowers can pledge U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. Prospective borrowers will need to submit a request via the standard email template available on the Bank Term Funding Program site. Assets will be valued at par instead of the lower market value that many of them currently have due to rising interest rates. The overnight index swap rate is used to determine the interest rate. This rate is also adjusted by 10 basis points and is fixed for the term of the loan. The rate was 4.83% as of Monday, the first day of operation. The Federal Reserve will publish weekly reports that detail program activity. Information on individual borrowers will be made public one year after the Bank Term Funding Program’s sunset. This is scheduled for March 11, 2024. The program’s rollout occurred four days after the collapsed Silicon Valley Bank sent shockwaves through the financial system. It had planned to sell $21 Billion of available-for sale securities at a steep discount in order to offset deposit outflows. However, that plan was quickly abandoned, triggering a crisis among investors and depositors. The bank was closed by state and federal regulators in Santa Clara, California on Friday. On Sunday, regulators shut down Signature Bank, a $110 billion bank. This caused widespread concern about the systemic health of the banking system. Signature, a New York-based bank, had a reputation for being a crypto-friendly institution. However, this reputation quickly deteriorated after the FTX scandal. The Treasury Department and regulators took a hard line in the immediate aftermath. Federal Deposit Insurance Corp. announced Friday that it would provide coverage for depositors upto $250,000. Treasury Secretary Janet Yellen stated early Sunday that there would not be a bailout for Silicon Valley. But, before the weekend was over government officials announced systemic risks exceptions for uninsured depositors at Signature and Silicon Valley. The government is clearly trying to protect the rest the financial services sector from the liquidity problems that led to the collapse of Signature and Silicon Valley. Now the question is: Did they go far enough. On Monday, many small banks still turned to the Federal Home Loan Bank System to get liquidity, largely because of the Bank Term Funding Program, which was just opened, according Peter Freilinger, founder of Paladin Advisors Group, a wealth advisory and financial management firm in Elkridge. Freilinger stated that the Fed facility is a “new wildcard.” “The best thing for banks would be to tap the Fed facility first, and then, when it comes due in a calendar year, roll it if they don’t roll it, then return to the FHLB. “But amid glum forecasts of market disruption and additional failures from many commentators,” several banking insiders said that they are encouraged by the creation the Bank Term Funding Program. Jaret Seiberg, an analyst at TD Cowen, described the new facility as a “shock-and-awe” response that should restore banks’ confidence. “Our view is the Bank Term Program is designed to further convince banks and other uninsured depositors that banks are a safe place for their money,” Seiberg wrote in a Monday research note. Randell Leach, CEO of Beneficial State Bank in Oakland, California called the program a “really strong structural support” for banks. Monday’s Leach stated that he thought the program was a great regulatory move. The Bank Term Funding Program does not address the problem of banks’ securities portfolio valuations. These have fallen as interest rates have risen sharply in the past year. The current situation would mean that hundreds of banks would have to suffer significant losses, similar to Silicon Valley’s. Leach said that the new liquidity facility gives institutions the time to find a solution. Thomas Coughlin is the president and CEO at the $3.5 billion-asset BCB Bancorp, Bayonne, New Jersey. Coughlin stated Monday that the recent actions of Treasury, Federal Reserve and FDIC would help restore investor and customer confidence in this industry during these uncertain times. Coughlin was careful to distinguish his institution, which uses a traditional community banking model, from banks that catered to venture-capital-backed tech startups or cryptocurrency providers. “Our community-focused, relationship-building approach has helped us develop a diversified and stable deposit funding foundation that continues to perform well in a challenging macroeconomic environment,” Coughlin said.Some other observers were less upbeat on Monday, as bank stock prices continued to get hammered. Quincy Krosby is LPL Financial’s chief global strategist. He stated that “the fear in market remains.” Krosby stated that “you can have as many facilities as your heart desires, but you need to be able to trust that this is not systemic.” There is much more precedent for the Bank Term Funding Program. The Fed created a liquidity facility to channel cash to lenders who were looking to purchase or make Paycheck Protection Program loans. The Federal Reserve also created a number of programs to ensure that depository institutions had cash access during the financial crisis in 2007 and 2008.