Explained: Regulators' Actions Following Bank Failures

March 20, 2023

The Federal Reserve, FDIC, and Treasury used policy tools previously deployed in COVID and the Great Financial Crisis (GFC) to guarantee all deposits at SVB and Signature Bank failures and provide liquidity to other banks holding long-term treasuries.

Why it matters: The powers allow the Fed and Treasury to act quickly in response to fast-moving systemic issues. But the actions are not without criticism and some lawmakers are questioning whether the actions were appropriate. On the other hand, there has been bipartisan praise for the move to provide stability.

Go deeper: The March 12 actions involved different programs to a ddress unsecured deposits and the reduced value of government bonds.

  • Securing All Deposits: The FDIC statute allows a so-called “systemic risk exception” that allows the Treasury Secretary with 2/3 of the FDIC Board and 2/3 of the Fed Board to exercise broad powers in using the Deposit Insurance Fund, including to cover potential losses to uninsured deposits. 12 U.S.C. §1823(c)(4)(G)
  • Providing Liquidity: The Fed also established a new Bank Term Funding Program (BTFP) that allows depository institutions to secure one year loans at par for eligible securities, including U.S. Treasuries, agency debt and MBS. The rate for the loan will be fixed at one-year overnight index swap rate plus 10 basis points on the day the advance is made. The program is similar to GFC and COVID-era liquidity facilities that allowed banks to pledge securities or other assets experiencing temporary pricing distress for loans.

The regulators are still trying to orchestrate an acquisition of SVB. Over the weekend Signature Bank’s deposits and branches were acquired by New York Community Bancorp. But other attests remain in receivership (see above story for further detail).

Although First Republic Bank had been in the market crosshairs for much of last week, other large and regional banks worked with regulators to deposit $30 billion of their own cash at First Republic.

What’s next: Fed Vice Chair for Supervision Michael Barr announced he is leading a review of SVB’s failure, which will be publicly available by May 1. The industry is also awaiting the start of Barr’s holistic review of bank capital rules, which will now come under much more scrutiny from all policymakers.

Contact David McCarthy (dmccarthy@crefc.org) with questions about this story. Contact Sairah Burki (sburki@crefc.org) with questions about the upcoming bank capital rules. 


David McCarthy
Managing Director, Head of Policy

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