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In the wake of the high-profile collapses of Silicon Valley Bank and Signature Bank in March 2023, the U.S. Federal Reserve launched the Bank Term Funding Program (BTFP) to restore stability and liquidity in the financial system. In a new report, ARC Capital Venture provides an in-depth analysis of the BTFP’s structure, objectives, and broader implications for U.S. banking resilience and investor confidence.
“The rapid launch of the BTFP was a textbook example of emergency policymaking done right,” said Mr. Max Harrington, Head of Marketing at ARC Capital Venture LLC. “It not only stabilized short-term funding conditions but also preserved public trust in a sector rocked by deposit flight and balance sheet vulnerabilities.”
The BTFP, established on March 12, 2023, was designed to provide eligible depository institutions with emergency liquidity support for up to one year. Banks, savings associations, and credit unions could pledge U.S. Treasuries, agency debt, and mortgage-backed securities as collateral—valued at par, not market value.
“Valuing collateral at par was the BTFP’s most innovative feature,” explained Mr. Timothy Solomon, Chief Financial Officer at ARC Capital Venture LLC. “This allowed banks to meet withdrawal demands without realizing losses on depreciated securities, buying them critical time and stability.”
The program was announced just days after SVB and Signature Bank failed, triggering fears of systemic risk due to the widespread presence of unrealized losses on banks’ long-term bond portfolios. The BTFP acted as a non-stigmatizing alternative to the Fed’s traditional Discount Window, quickly gaining traction among smaller financial institutions.
Rising interest rates in 2022 and 2023 sharply reduced the market value of banks’ long-duration securities. When SVB revealed significant losses and an urgent need for capital, panic set in. Customers withdrew $42 billion in a single day—an unprecedented digital-age bank run.
“The speed of contagion underscored how fragile liquidity management had become,” said Mr. Lewis Williams, Senior Consultant at ARC Capital Venture LLC. “The BTFP filled a critical gap, restoring short-term confidence while regulators assessed systemic risk.”
By the time it concluded on March 11, 2024, the BTFP had been used by 1,804 institutions—95% of which held assets under $10 billion. The program extended approximately $165 billion in loans, providing crucial liquidity to regional and community banks during a high-stress period.
“The widespread adoption of the BTFP shows how essential liquidity tools are in safeguarding smaller institutions,” noted Mr. Kevin Bollinger, Head of Acquisitions at ARC Capital Venture LLC. “The program also demonstrated how quickly coordinated responses can prevent a crisis from spiraling.”
As the financial landscape becomes increasingly complex, the success of the BTFP offers a blueprint for future crisis responses. ARC Capital Venture emphasizes that proactive risk assessment and policy readiness will be essential in mitigating the next potential disruption.
“The BTFP stands as a powerful example of targeted intervention at a moment of widespread fragility,” concluded Mr. Derek Edwards, Board of Directors at ARC Capital Venture LLC. “Moving forward, both regulators and financial institutions must remain agile, prepared to act swiftly and decisively.”
To
learn more about how ARC Capital Venture helps institutions and investors
prepare for systemic financial risks, visit the official ARC Capital Venture website.