The Federal Reserve’s Bank Term Funding Program (BTFP) offers loans of up to one year in length to federally insured credit unions and other depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities and other qualifying assets as collateral. Advances can be requested under the program until March 11, 2024. The program uses some existing discount window agreements and accounts, so the process is streamlined if your credit union already has discount window access.
A good source of information for the program is the Federal Reserve Discount Window website here and more importantly, the Bank Term Funding Program part of that site here.
- An overview of the program can be found here
- Frequently asked questions regarding the program can be found here
If your credit union needs assistance or has additional questions, please reach out to Vizo Financial at liquidity@vfccu.org. We would be happy to assist you with this new program.
Agreements
In order to use the program, a credit union must have certain agreements and accounts in place with their District Federal Reserve Bank (FRB). A credit union needs to work directly with the FRB to get the agreements in place.
First, a credit union must have agreements relating to Operating Circular No. 10 (OC-10) in place. Those agreements give the credit union ability to borrow from the Federal Reserve. If you have access to the discount window, you already have these agreements in place. If not, this is the place to start. Some of the agreements can vary between the different Federal Reserve Districts so it is best to visit your District’s page on the FRB Discount Window Website. When you select your FRB District, a portion of the site will come up that has contact information for your FRB (use the discount window contact information), instructions for competing OC-10 agreements and links to the various agreements.
For your convenience here are the direct links to the following Districts.
- District 1, Boston – Click Here
- District 2, New York – Click Here
- District 3, Philadelphia – Click Here
- District 4, Cleveland – Click Here
- District 5, Richmond – Click Here
- District 6, Atlanta – Click Here
- District 7, Chicago – Click Here
- District 8, St. Louis – Click Here
- District 9, Minneapolis – Click Here
- District 10, Kansas City – Click Here
- District 11, Dallas – Click Here
- District 12, San Francisco – Click Here
Second, if your credit union does not have its own Fed account and wants to use Vizo Financial as its correspondent to receive advances and make payments, there is an agreement that is part of the OC-10 agreement package that both your credit union and Vizo Financial must sign. That agreement is called “Letter of Agreement to Correspondent Credit and Payment Agreement.” That agreement will be part of the agreement listing you found in the first step.
Third, your credit union must have collateral accounts established with the FRB to which you will pledge or deliver securities collateral. If you have discount window access and have pledged securities before, the accounts should already be in place. However, if you do not have discount window access; or, you have access and have not used the discount window; or you have pledged loans to use the discount window, you may need to complete additional agreements with your FRB. It is best to reach out to your FRB if you already have access to the discount window to make sure the proper collateral accounts are in place.
Fourth, your credit union must submit an e-mail to your FRB that indicates you want to participate in the BTFP. The e-mail should take the form of the document called "BTFP Standard Template Email" which is on the FRB website via a link located here.
Collateral
To use the program, eligible securities collateral must either be pledged or delivered to the FRB. Information concerning collateral is found in the FAQ link in the overview section of this page. One of the benefits of this program is that collateral is valued at par and there is no haircut taken. Borrowings can be 100% of the par value of collateral. If you are using amortized securities as collateral, it is best to maintain a cushion between the loan amount and the par value of the collateral, as the value of the collateral must always meet or exceed the borrowed amount. In addition, only collateral owned by your credit union as of March 12, 2023, is eligible.
If your credit union uses Vizo Financial’s security safekeeping and custody program, we can pledge your securities directly to the FRB which is much more efficient than delivering collateral to FRB. Please contact our safekeeping department if you wish to pledge collateral and we can take you through the process. If you are not on our safekeeping program, you should contact your custodian for available options.
Wrap Up
As the Bank Term Funding Program is a Federal Reserve program, a credit union will need to work directly with their Federal Reserve Bank to gain access to the program. Vizo Financial can help by being your correspondent for transactions, pledging collateral for you if you are part of our safekeeping and custody program and helping to answer questions you have about the program. This is an excellent program for those credit unions that need liquidity and have eligible securities collateral that has lost value due to the rising rate environment.
