illumin Holdings Inc T.ILLM

Bank Term Funding Program

[Torontojay]

1) Shareholders and unsecured debt holders are not protected from the Bank Term Funding Program. Depositors will receive their money. 

2) Banks can swap their high quality bonds/assets to the Fed in exchange for cash to provide additional liquidity to depositors that have to access their cash.  In other words, rather than liquidate a long duration asset, you can swap your high quality bonds, I.e , treasuries, and the Fed will accept the duration risk. What's the catch? Well, the bank has to pay the Fed at the market implied Fed funds rate 1 year from now. This is a 1 year overnight index swap. 

You are giving the Fed high quality collateral and they are giving you the cash. The Fed accepts the duration risk for just 10 basis points above the market implied Federal funds rate 1 year from now. This is basically the discount window rate that the Fed charges banks as they are always the lender of last resort.

This is a great deal for Silicon Valley Bank!