• The US central bank’s lending program, Bank Term Fund Program (BTFP), has issued loans exceeding $100 billion to US banks, indicating high demand for liquidity in the banking industry.
• The increasing number of loans suggests that banks still require additional funding to meet their obligations to depositors. Meanwhile, banks are facing unrealized losses of $620 billion due to rising interest rates.

The lending program of the US central bank is once again in high demand as borrowings from the US banks reach north of $100 billion. As per the latest data from the Federal Reserve, its Bank Term Fund Program (BTFP) has issued loans to the tune of $100.16 billion as of June 7 last week.

This was nearly 8% higher than the $93.61 billion borrowed in the week ending May 31st. The BTFP program was rolled out earlier this year during the peak of the banking crisis earlier this year in order to provide liquidity to banks that seeing heavy withdrawal demand and tight liquidity.

Under this program, banks can pledge their assets such as government bonds and mortgage-backed securities, which would serve as collateral to access additional funding.

The BTFP Program By the US Fed

The purpose of BTFP was to help banks avoid selling their assets during difficult times.

The increasing number of loans given out by the Fed through BTFP suggests that the banking industry still needs more funding to meet its obligations to depositors. This also shows that banks are still feeling the pressure from the Fed’s strict monetary policies.

The central bank has raised interest rates 10 times in the past 14 months, bringing its benchmark rate to 5.08% – the highest level since 2007. Because of these aggressive rate hikes, banks that acquired government bonds a few years ago when interest rates were low are seeing the value of their holdings decrease as investors prefer newly issued US debt with higher interest rates.

Reports indicate that banks in the US are currently dealing with unrealized losses of $620 billion due to the rapid increase in interest rates.

Will Bitcoin and Crypto Rally?

As the US Fed steps in to help banks combat the liquidity crunch, there’s more money flowing into the system. However, this time, the Fed is likely to keep a close watch on whether the funds are moving and it’s less likely that the bank would serve crypto clients with open arms.

On the other hand, the recent crackdown by the US SEC on top crypto exchanges like Coinbase and Binance has forced their banking partners to reconsider their relations with them. This is further likely to tighten liquidity conditions for the crypto market.

After the FOMC meeting on Wednesday, Fed Chairman Jerome Powell hinted at the possibility of two more rate hikes ahead this year despite putting a pause for now. However, soon after, Bitcoin and the broader crypto market entered a steep correction.

As of press time, Bitcoin (BTC) was trading nearly 5% down slipping under $25,000 levels. On the other hand, altcoins have entered into a correction in the magnitude of 6-8%. The market sentiment seems more bearish as of now.