Exiting the Bank Term Funding Program

The Bank Term Funding Program will end on March 11, 2024 ...

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.  

Tenor Advance Rate Dividend Adjusted Rate* BTFP Δ vs BTFP
w/o dividend
w/ dividend
6M 5.40 5.31 5.40 0.00 -0.09
1Yr 4.99 4.90 5.40 -0.41 -0.50

Table 1. FHLBank SF Advance rates as of 1/30/2024 vs BTFP. Advance rates are for indication purposes only. Please contact the Member Services Desk at (415) 616-2500 for live pricing.

In the inverted yield curve environment that currently exists, members can lock in even more favorable rates if they consider using longer term funding with FHLBank San Francisco, as shown in Table 2.

Tenor Advance Rate Dividend Adjusted Rate* Δ vs 1yr Advance Rate
2Yr 4.49 4.40 -0.50
3Yr 4.30 4.21 -0.69
5Yr 4.19 4.10 -0.80

Table 2. Longer-term FHLBSF Advance rates as of 1/30/2024 vs 1Yr FHLBSF advance rate. Advance rates are for indication purposes only. Please contact the Member Services Desk at (415) 616-2500 for live pricing.

Members who are not in need of immediate funding but want to secure funds now at a favorable rate may find that FHLBank San Francisco forward starting advances is the right solution. Forward starting advances may particularly appeal to members who are thinking about paying off their BTFP liabilities later this year, see Table 3 for more detail.

Tenor Forward Start Advance Rate Dividend Adjusted Rate* Dividend Adjusted Rate
w/o Forward Start
Δ vs Spot Advance Rate
6M 3/11/2024 5.25 5.15 5.31 -0.15
6M 3/29/2024 5.17 5.08 5.31 -0.23
6M 6/28/2024 4.78 4.69 5.31 -0.62
6M 9/30/2024 4.53 4.44 5.31 -0.87
6M 12/31/2024 4.36 4.27 5.31 -1.04
1Yr 3/11/2024 4.87 4.77 4.90 -0.12
1Yr 3/29/2024 4.80 4.71 4.90 -0.19
1Yr 6/28/2024 4.51 4.41 4.90 -0.48
1Yr 9/30/2024 4.27 4.18 4.90 -0.72
1Yr 12/31/2024 4.11 4.01 4.90 -0.88
2yr 3/11/2024 4.41 4.32 4.40 -0.08
2yr 3/29/2024 4.37 4.28 4.40 -0.12
2yr 6/28/2024 4.21 4.12 4.40 -0.28
2yr 9/30/2024 4.09 4.00 4.40 -0.40
2yr 12/31/2024 4.02 3.92 4.40 -0.47
3yr 3/11/2024 4.25 4.16 4.21 -0.05
3yr 3/29/2024 4.23 4.14 4.21 -0.07
3yr 6/28/2024 4.13 4.04 4.21 -0.17
3yr 9/30/2024 4.07 3.98 4.21 -0.23
3yr 12/31/2024 4.05 3.95 4.21 -0.25
5yr 3/11/2024 4.15 4.05 4.10 -0.04
5yr 3/29/2024 4.13 4.03 4.10 -0.06
5yr 6/28/2024 4.04 3.95 4.10 -0.15
5yr 9/30/2024 3.98 3.89 4.10 -0.21
5yr 12/31/2024 3.94 3.85 4.10 -0.25

Table 3. Forward starting FHLBank SF Advance rates as of 1/30/2024 vs spot FHLBSF advance rates. Advance rates are for indication purposes only. Please contact the Member Services Desk at (415) 616-2500 for live pricing.

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.

*The decision to declare any dividend, and the dividend rate, is at the discretion of the Bank’s Board of Directors, which may or may not align with the Bank’s current dividend philosophy. The Bank’s dividend philosophy serves as guidance in the dividend declaration however the Bank will take other factors into consideration as it deems necessary. The Board of Directors may also revise or eliminate  the Bank’s current dividend philosophy in the future. Neither the Bank’s historical dividend rates nor its current dividend philosophy are indicative of future dividend declarations. FHLBank San Francisco’s dividend rate is 8.75% for Q4 2023, which is payable in March 2024. Assuming a 2.7% capital stock purchase requirement, an 8.75% Q4 2023 dividend rate, and a 5.33% opportunity cost of funding a required capital stock purchase (average Effective Federal Funds rate for Q4 2023), the dividend benefit is estimated to be 9 basis points.

The information contained herein is for informational purposes only and should not be construed as a solicitation or offer or advice (financial, legal, or otherwise) by the Bank. Cited information is derived from sources generally believed by the Bank to be reliable, but the Bank does not warrant the accuracy or reasonableness of the information or of any assumptions or other information contained in this paper, and the Bank expressly disclaims responsibility for any errors or omissions in computing or disseminating the information, and any use to which the information is put.  The Bank further expressly disclaims any obligation to update the information presented in this paper.