Finance and Economics Discussion Series (FEDS)
June 2024
The 2023 Banking Turmoil and the Bank Term Funding Program
David Glancy, Felicia Ionescu, Elizabeth Klee, Antonis Kotidis, Michael Siemer, Andrei Zlate
Abstract:
We use high-frequency data to examine the effectiveness of the Bank Term Funding Program (BTFP) in supporting the liquidity positions of vulnerable banks during the March 2023 banking turmoil. We uncover three key findings. First, our high-frequency data confirm that banks with high reliance on uninsured deposits and large unrealized losses on securities holdings suffered larger deposit outflows at the onset of the episode. Second, the BTFP played an outsized role in meeting these outflows at banks with larger securities losses, reflecting the at-par valuation of securities collateral at the BTFP (banks at the 90th percentile in securities losses replaced 26 cents of every dollar of outflows with BTFP borrowing, compared to only 7 cents on average). Third, in addition to funding loan growth and deposit outflows, banks used the BTFP to build cash holdings, indicating that the program enabled banks to position themselves against potential future funding needs. Overall, we demonstrate that the BTFP enabled banks to meet funding needs and preserve liquidity during the period of stress.
Keywords: 2023 banking turmoil, Bank Term Funding Program (BTFP), deposit outflows, emergency liquidity facilities, securities losses, uninsured deposits
DOI: https://doi.org/10.17016/FEDS.2024.045
PDF: Full Paper
Disclaimer: The economic research that is linked from this page represents the views of the authors and does not indicate concurrence either by other members of the Board's staff or by the Board of Governors. The economic research and their conclusions are often preliminary and are circulated to stimulate discussion and critical comment. The Board values having a staff that conducts research on a wide range of economic topics and that explores a diverse array of perspectives on those topics. The resulting conversations in academia, the economic policy community, and the broader public are important to sharpening our collective thinking.