The Whole World is “Picking Up the Tab” for US Federal Reserve
The recent incident involving Silicon Valley Bank (SVB) has exacerbated concerns over a potential liquidity crisis within the global banking system. This unease has spread from the US to Europe over the past week, prompting intervention by the US Federal Reserve. To address these concerns, the Federal Reserve has launched a new emergency program known as the Bank Term Funding Program (BTFP), which provides collateralized loans to banks. The US Treasury has pledged $25 billion in support of this initiative through the Exchange Stabilization Fund. The introduction of BTFP has resulted in $11.9 billion being utilized in one week. In the meantime, an surge of $300 billion in the Fed’s balance sheet was also seen. In addition, the Federal Reserve, along with the central banks of Canada, the UK, Japan, the Eurozone, and Switzerland, released a joint statement over the weekend announcing additional support for global market liquidity through permanent USD liquidity swap arrangements.