Updated as of 3/13/24

During a period of financial stress last spring, the Bank Term Funding Program (BTFP) was created to assure the stability of the banking system and provide support for the economy. It allowed federally insured banks and credit unions to borrow funds for up to one year, pledging securities such as U.S. Treasuries and agency debt as collateral valued at par. 

On January 24, the Federal Reserve raised the rate on BTFP loans, after institutions taking advantage of the attractive financing terms caused a borrowing surge in recent months. Effective that day, the Fed indicated that adjusted interest rate for borrowing will “be no lower” than the Interest on Reserve Balances (IORB) in effect on the day the loan is made. This effectively ended a profitable arbitrage opportunity for lenders.

Always meant to be a temporary facility, BTFP expired on March 11, 2024. Financial institutions will need to prepare to pay off the BFTP borrowings when they come due. The key to preparing is to be informed, understand your options, and take proactive steps for success.

While there are funding options available to pay off the BTFP borrowings, such as brokered deposits, reverse repo transactions, or use of the Fed discount window, members of FHLBank San Francisco have access to competitively priced funding along with other benefits of membership. 

FHLBank San Francisco – a source for competitively priced funding

For member institutions who have BTFP funding to pay off, it is worth noting that the adjusted terms of BTFP effectively raised the cost of borrowing from BTFP by approximately 52 basis points. It’s also worth noting that FHLBank San Francisco offers advance maturities well beyond the one year limitation of BTFP and includes a potential credit to the member with a prepayment symmetry feature available in its advances. 

Further consideration is the dividend that FHLBank San Francisco endeavors to pay quarterly to its members. As a cooperative, FHLBank San Francisco is privately owned by their member financial institutions who purchase and hold capital stock. The dividend, in effect, further lowers the all-in cost of borrowing from FHLBank San Francisco. As shown in Table 1, FHLBank San Francisco 6-month and 1-year Fixed Rate Credit advances may present compelling options for members versus BTFP, especially when the potential dividend benefit is considered. On February 21, 2024, FHLBank San Francisco announced the quarterly cash dividend on the average capital stock outstanding during the fourth quarter of 2023 at an annualized rate of 8.75%, an increase from the 8.25% rate paid for the prior quarter. The data below has been updated to reflect the impact of this increase on borrowing costs.

FHLBank San Francisco membership benefits communities

FHLBank San Francisco makes a portion of its net income available through grants to finance the purchase, construction, or rehabilitation of housing for low- or moderate- income households in member communities. Utilizing FHLBank credit for a BTFP exit, rather than other options, will result in more financing available for housing needs in member communities.

Make sure that you are positioned for a successful exit from BTFP.

If you have additional questions about product solutions from FHLBank San Francisco, contact the Member Services Desk at (415) 616-2500 or your Relationship Manager.