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- The US banks seem to be in a pickle due to rising debt.
- The Feds are helping them with Bank Term Fund Program (BTFP).
If you have been following the news of the United States, you know that its leaders have been mulling over stretching its debt ceilings. It means the country can dole out more loans to its industries and citizens in various forms. And as per the reports, the lending program of the US federal reserve has touched the never-before-met threshold of $100 billion.
Supporting US banks with a bespoke program
The latest data shows that the Feds have coughed up loans to the tune of $100.16 billion under its US banks Term Fund Program (BTFP). Till May, it was $93.61 billion only.
Recently, when the banks were facing a crisis, the government rolled the BTFP to meet the economic needs. Under the program, banks are allowed to take loans in lieu of their assets. They can pledge mortgage-backed securities, government bonds, and additional funding as collateral. The structure also gave rights to the feds to sell those assets if needed.
The massive amount of loans simply only indicates the needy situation being faced by the banks right now. It also shows that the banking industry remains in serious need of additional funding sources.
US banks are being prudent at the time
In the last 14 months, the central bank has implemented 10 straight rate hikes. The level has not been seen since 2007 and the benchmark interest rate has risen to 5.08%.
It seems that the banks anticipated such a happenstance and prepared themselves in advance. They started to accumulate the assets a few years ago when the interest rates were close to nil. Also, the investors seeking debts are ready to pay higher rates and this is resulting in the decline of value.
Reportedly, the banks are staring at unrealized losses worth $620 billion globally. This is happening due to a steep hike in interest rates.
Conclusion
US banks have been going through bad timings from time to time, because of due to many reasons from time to time. The last great recession happened due to real estate. Well, it would be an exaggeration to say that we’re headed toward another recession. However, the economic downturn has been going on for quite some time now. The Russia-Ukraine is also a major reason, but not the only reason. there are many other factors at play too.
Thankfully, the banks find a solution to support their citizens and businesses. The US has found a way to do so and it seems the programs have performed well so far. so far so well. However, we’ll have to see how things will shape up with altered policies and stretched debt limits.
It is also notable that Moreover, whenever there’s a crisis surrounding banks, it calls for an outlay of funds. The government understands this well and adjusts the approach according to it. With instances like this, the government sets new precedents for changes. It helps the nation recoup with a flux of money procured with various means. No matter what the channels of funding are, the government supports such financial endeavors.
So while the US banks go through a rough patch, several support sources also crop up. However, it’s anyone’s guess if the situation will get worse or better.
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