The 2023 Banking Turmoil and the Bank Term Funding Program

We use high-frequency data to examine the effectiveness of the Bank Term Funding Program (BTFP) in supporting the liquidity positions of vulnerable banks during the March 2023 banking turmoil. We uncover three key findings. First, our high-frequency data confirm that banks with high reliance on uninsured deposits and large unrealized losses on securities holdings suffered larger deposit outflows at the onset of the episode. Second, the BTFP played an outsized role in meeting these outflows at banks with larger securities losses, reflecting the at-par valuation of securities collateral at the BTFP (banks at the 90th percentile in securities losses replaced 26 cents of every dollar of outflows with BTFP borrowing, compared to only 7 cents on average). Third, in addition to funding loan growth and deposit outflows, banks used the BTFP to build cash holdings, indicating that the program enabled banks to position themselves against potential future funding needs. Overall, we demonstrate that the BTFP enabled banks to meet funding needs and preserve liquidity during the period of stress.