Fed’s New Backstop Shields Banks From $300 Billion of Losses

US authorities took extraordinary measures to shore up confidence in the financial system after the collapse of Silicon Valley Bank, introducing a new backstop for banks that Federal Reserve officials said was big enough to protect the entire nation’s deposits.

The Sunday announcement by the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. followed a frantic weekend that saw the surprise closure of New York’s Signature Bank along with mounting concerns about spillover effects to other regional lenders and the wider economy.

Regulators acted on a number of fronts to contain the potential fallout:

  • The FDIC said it will resolve SVB in a way that “fully protects all depositors.” Similarly, “all depositors” at Signature will be made whole.
  • The Fed also announced a new “Bank Term Funding Program” that offers one-year loans to banks under easier terms than it typically provides. $25 billion is available.
  • The central bank relaxed terms for lending through its discount window, its main direct lending facility.

The response helped soothe investors worried about additional bank runs or the risk a fresh financial crisis would trigger a recession. US stock futures climbed on Monday after bank shares plunged last week by the most since the March 2020 pandemic shock.