The financial services company JP Morgan & Co viewed that the U.S. banking systems could be injected with 2 trillion US dollars. The statements came following the introduction of the BTFP (Bank Term Funding Program)by the Federal Reserve.
In short, JP Morgan said that the BTFP would act to decelerate the liquidity crunch currently experienced by the US Banking systems.
BTFP was announced at the beginning of March after the fall of the three major money lenders in the US. The primary goal of the scheme is to prevent the selling of debt at discounted prices to get funding money.
Currently, the US banking system has more than 3 trillion US dollars but the greater portion of it is held by the biggest banks in the sector.
The now-existing liquidity crunch is caused because of the quantitative tightening implemented by the fed and the interest rate hike.
Fed is on the move to not push the interest rate hike in an attempt to ensure that the banking sector operates with stability.
The board of Governors of the Fed Reserve system announced that the BTFP was created to support American businesses and households by making additional funding available to eligible depository institutions to help the banks to assure that it has the ability to meet the needs of all their depositors.
The BTFP was announced on March 15 and JP Morgan made the comment on March 16, the very next day.
JP Morgan said that the usage of the Fed’s BTFP was likely to be big. The company continued that the Fed had made a promise to contribute the amount to relax the liquidity crunch, which was likely to be nearer to 2 trillion US dollars. This is the par amount of bonds out forward by the US banks.
A group of strategists from JP Morgan released multiple findings. As per this data, the BTFP would act in support of the banking system by bestowing it with enough reserves and in turn helping it to reduce reserve scarcity. The funding then said that the scheme act to help the reverse tightening in which the whole industry has been immersed since the past year.
Another finding stated that as per the new program of the Fed, the banks, the savings associations, and other qualified institutions would be provided with loans for up to a maximum period of one year.
This would be implemented as an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.
In yet another finding, it was noted that an amount of 3 trillion US dollars of reserves in the US banking system would be under the hold of giant banks. Additionally, in the same finding, it was added that the liquidity crisis has been the outcome of the Fed’s quantitative tightening as well as its interest hikes.
The finding had the conclusion that the largest banks in the nation were not likely to tap the program. It further said that the maximum usage envisaged for the facility was close to 2 trillion. Although it is considered as the par amount of bonds but not for the first five biggest banks.
The strategists were led by Nikolaos Panigirtzoglo, who serves as the Managing Director at JP Morgan and Co.
The current moves are a result of not letting the nation’s banking sector destabilize following the shutdown of the Silicon Valley bank and other money lenders that announced exposure to SVB.
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Previously, on the evening of March 12th Joe Biden, the current President of the United States of America had initiated an emergency rescue of the US banking system in an effort to not stop the further collapses of banks and money lenders.
As the authorities acted to minimize the impact of the collapse of the Signature Bank due to the fall of SVB, the trading market had a struggling session.
The seizure of the Signature Bank marked the third largest bank failure in the u.S. It was because when the bank announced its exposure to SVB the customer’s panic reaction flooded into the bank to withdraw their savings amounts, close their bank accounts, and cancel all business transactions deals with the banks. Although the bank tried to convince the customers it did not succeed in the effort.
The bank was closed on Sunday by the FDIC, the Federal Deposit Insurance Corporation.
SVB collapsed two days before this following its announcement of the decision to sell billions worth of stocks. The bank aimed to shore up its balance sheet. This caused other financial firms to advise their founders to keep only minimal funds in cash amounts at the bank and to close dealings as soon as possible.
The bank had ample liquidity to support its clients, but the clients turned their back on the bank which led to a major downfall, from which the bank could not recover.
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