The Fed Funds Risk-Premium After the Silicon Valley Bank Run and the Bank Term Funding Program (BTFP)

Abstract

We find the emergency lending program introduced on March 12, 2023, called the Bank Term Funding Program (BTFP) coincided with a statistically significant increase in the risk-premium on Fed funds loans relative to the shortest-term T-bills. We find that the risk-premium on Fed funds loans less 28-day T-bills increased by between 39 and 56 basis points in the wake of the Silicon Valley Bank and Signature Bank runs. This led to a stealth loosening of monetary conditions without a Fed funds rate cut in part due to the incentives created by the BTFP to have banks hoard Treasuries and other eligible collateral.

Keywords

Bank Term Funding Program BTFP emergency lending Fed Federal Reserve Fed funds rate Signature Bank Silicon Valley Bank T-bills Treasuries

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