Part 7/11:
The Fed’s creation of the Bank Term Funding Program (BTFP) with $25 billion aims to prevent forced asset sales that could cause losses for banks. By offering to lend against long-term securities at favorable terms, the Fed seeks to stabilize liquidity. However, there's debate over whether this constitutes a de facto bailout. Critics argue that as long as banks rely on central bank support, moral hazard persists, encouraging sloppy risk management knowing they have a backstop.
How the Fed's Actions Are Perceived
- Proponents see this as a necessary, temporary measure to prevent systemic collapse.