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Fed announces an end date to its Bank Term Funding Program
On January 24, the Federal Reserve announced that its program created to protect liquidity following a period of financial stress last spring, named the Bank Term Funding Program (BTFP), will stop making loans on March 11. The Fed was granted the authority to provide more liquidity to depository institutions under Section 13(3) of the Federal Reserve Act, whereby the Fed can lend to banks and nonbanks in emergencies and for one year at a time. The Spring 2023 banking issues led to liquidity concerns, which the Fed sought to stabilize with the BTFP. According to the term sheet, the rate for term advances will be the “one-year overnight index swap rate plus 10 basis points” as long as the rate is not lower than the IORB rate that same day. In return, the borrower financial institutions pledge their debt and securities as collateral. The Fed notes that advances can still be requested under the BTFP until March 11. However, the interest rate applicable to new BTFP loans between now and March 11 will be no lower than the interest rate on reserve balances (IORB).
Financial Services Committee Republicans ask Fed for clarification on CBDC
On September 7, Republican members of the House Financial Services Committee submitted a letter to Federal Reserve Vice Chair Lael Brainard in response to a May hearing examining the potential impact of a Central Bank Digital Currency (CBDC). The letter, among other things, requested that Brainard provide her testimony regarding the Fed’s authority under the Federal Reserve Act to issue a CBDC (and without separate specific authorizing federal legislation). Specifically, the members requested that Brainard clarify: (i) the Fed’s motivation for issuing a CBDC; (ii) the need for Congress to support a Fed-issued CBDC; (iii) the Fed’s position on individual retail accounts at the Fed; (iv) the need for Congress to authorize an intermediated CBDC model; and (v) the need for “strong support” from the Executive Branch. The members asked for a response in writing by September 30.