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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, said Fed Vice Chairman 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.”
At the moment, banks have $141.2 billion in loans outstanding from the bank program, according to the latest Fed data.
Banks may continue to borrow under the program until March 11 and refinance loans until 2025, Barr said.
The government set aside $25 billion last year as a backstop for the emergency program, which was set up to stem a rush of deposit outflows from banks following the collapse of Silicon Valley Bank in March of 2023.
On other regulatory topics, Barr said the extended comment period for the proposed Basel III capital requirements ends on January 16, but he did not provide any details on what the final proposal will look like.
“We’ve been receiving a lot of comments,” Barr said. “It’ll help us to get the balance right.”
Barr pushed back against comments by the banking industry that higher capital requirements will raise the price of mortgages and other loans to consumers.
A typical mortgage loan under the proposed regime would rise to about 5.03% from 5%, he said.
The proposed rules would have a “pretty modest” impact on the cost of credit, he said.
Barr said bank officials “talk all the time” about potential risks to the banking system by private credit and other alternative lenders and how to regulate it.
Although private lenders operate outside the regulated banking system, banks still act as counterparties and provide loans to them, Barr said.
“There’s no easy answer” in 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.
Yet 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 with Women in Housing and Finance Inc. in Washington, D.C.
Also read: Fed cop Michael Barr defends higher capital requirements as bankers bristle
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