The Federal Reserve has announced that it will not extend the Bank Term Funding Program, an emergency loan initiative that was launched last year to support the banking system in response to the collapse of Silicon Valley Bank. Fed Vice Chairman Michael Barr confirmed this decision during a panel discussion on Tuesday.
Barr emphasized that the program had achieved its intended purpose, effectively reducing stress in the system. He described its impact as significant, stating, "It dramatically reduced stress in the system very quickly... It was highly effective."
Currently, banks have $141.2 billion in outstanding loans from this program, according to the latest data from the Fed. However, banks can still borrow under the program until March 11 and refinance their loans until 2025, as indicated by Barr.
Last year, the government designated $25 billion as a safety net for this emergency initiative. Its objective was to prevent a mass withdrawal of deposits from banks following the collapse of Silicon Valley Bank in March 2023.
In addition, Barr mentioned that the extended comment period for the proposed Basel III capital requirements will conclude on January 16. However, he did not provide any specific details about the final proposal. Barr did acknowledge that the comments received during this period will assist in ensuring a balanced approach moving forward.
Barr Stands Firm Against Industry Claims on Capital Requirements
In response to concerns raised by the banking industry regarding higher capital requirements, William Barr, a prominent figure in the sector, pushed back, arguing that these requirements would not significantly impact consumers. He highlighted that under the proposed regulations, the average mortgage loan would increase only marginally, from 5% to approximately 5.03%. Thus, contrary to the claims made by financial institutions, the rise in capital requirements would have a "pretty modest" effect on the cost of credit.
Barr further acknowledged ongoing discussions within the banking community about managing potential risks associated with private credit and other alternative lenders. While these entities operate outside the regulated banking system, banks still engage with them by acting as counterparties and providing loans. Addressing regulatory challenges for the entire system poses considerable complexity, as it resembles "squeezing a balloon" whereby risks may emerge elsewhere when certain areas are heavily regulated. Nevertheless, Barr emphasized the necessity of comprehensive regulations to ensure a robust financial universe with a secure foundation.
Barr's remarks took place during a dialogue moderated by Women in Housing and Finance Inc., providing insight into his perspective on capital requirements and the broader financial landscape.
Additional Readings:
- Fed community-bank advocate Michelle Bowman says proposed bank reforms go beyond what the law intends
- Fed cop Michael Barr defends higher capital requirements as bankers bristle
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