Fed will let emergency bank-loan program expire, top official says

This story has been updated to remove incorrect details about the type of loan rate Barr was discussing and when banks could refinance under of the Bank Term Funding program.

The Federal Reserve has no plans to extend an emergency loan program it launched last year to bolster the capacity of the banking system in the wake of the collapse of Silicon Valley Bank.

The Bank Term Funding Program will expire on March 11 as it reaches its original one-year time limit, Fed Vice Chair for Supervision Michael Barr said at a panel appearance on Tuesday.

“The program worked as intended,” Barr said. “It dramatically reduced stress in the system very quickly. It was highly effective,” he said, adding “it really was established as an emergency program.”

At the moment, banks have $141.2 billion in loans outstanding from the bank program, according to the latest Fed data.

Banks may refinance debt until the last day of the program in March, with a maximum repayment time of one year.

The government set aside $25 billion last year as a backstop for the emergency program, which was established to stem a rush of deposit outflows from banks following the collapse of Silicon Valley Bank in March 2023.

On other regulatory topics, Barr said the extended comment period for the proposed Basel III capital requirements ends on Jan. 16, but he did not provide any details on what the final proposal will look like.

“We’ve been receiving a lot of comments,” he said. “It’ll help us to get the balance right.”

Barr pushed back against charges by the banking industry that higher capital requirements will raise the price of mortgages and other loans to consumers.

A typical consumer-loan rate under the proposed regime would rise to about 5.03% from 5% if all of the costs were passed through to a borrower, he said, adding that the proposed rules would have a “pretty modest” impact on the cost of credit.

Barr said bank officials “talk all the time” about potential risks to the banking system posed by private credit and other alternative lenders and about how to regulate those risks.

Although private lenders operate outside the regulated banking system, banks still act as counterparties and provide loans to them, he said.

“There’s no easy answer” for how to regulate the entire system, Barr said. If regulations are too onerous, it’ll be like “squeezing a balloon,” and the risks may simply pop out somewhere else, he said.

At the same time, the banking system needs regulations to assure that the financial universe “has a strong core,” Barr said.

Barr’s comments came during a moderated talk in Washington, D.C., with Women in Housing and Finance, a member organization for women in the fields of housing, finance and development.

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