- JP Morgan commented that the Fed’s BTFP would reduce the liquidity crunch in the US Banking system.
- The Federal Reserve has announced the introduction of BTFP, a funding program to help US banks.
- As per the new scheme, the Fed would administer $2 trillion to the US banks.
JP Morgan Chase & Co, the financial services company stated on Wednesday that the Federal Reserve’s emergency funding program would administer almost $2 trillion in funds into the US banking system, alleviating the current liquidity crux.
Notably, on March 15, the Board of Governors of the Federal Reserve System announced the introduction of the Bank Term Funding Program (BTFP), quoting:
The Bank Term Funding Program (BTFP) was created to support American businesses and households by making additional funding available to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.
Following the Federal Reserve’s announcement, J.P. Morgan commented that “the usage of the Fed’s Bank Term Funding Program is likely to be big.” The company added that the Fed has promised to contribute the amount to relax the liquidity crunch, which is likely to be nearer to $2 trillion, the par amount of bonds held by the US banks.
The company’s strategists asserted that the BTFP would support the banking system by bestowing it with enough reserves, thereby helping it reduce reserve scarcity. The scheme would also help reverse the tightening in which the whole industry has been immersed over the past year.
Significantly, according to the Fed’s program, the banks, savings associations, and other eligible institutions would be provided loans of up to one year in length as an “additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress”.
Interestingly, the JP Morgan strategists wrote that a substantial portion of the $3 trillion of reserves in the US banking system would be under the hold of the largest banks. In addition, the strategists affirmed that the liquidity crisis has been the outcome of the Fed’s quantitative tightening as well as its interest hikes.