The Federal Reserve has no plans to extend the emergency loan program it launched last year to boost the banking system's capacity in the wake of the Silicon Valley bank collapse.
The bank's term financing program will end on March 11 when it reaches the original time limit of one year, Fed Deputy Chairman for Supervision Michael Barr said in a panel discussion on Tuesday.
“The program worked as intended,” Barr said. “It dramatically reduced the pressure in the system very quickly. … It was very effective.”
Right now, banks have $141.2 billion in loans outstanding from the bank program, according to the latest Federal Reserve data.
Banks may continue to borrow under the program until March 11 and refinance loans through 2025, Barr said.
The government allocated $25 billion last year to support the emergency program, which was created to stem the rush of deposit outflows from banks after the collapse of Silicon Valley Bank in March 2023.
On other regulatory topics, Barr said the extended comment period for Basel III's proposed capital requirements ends on January 16, but he did not provide any details on what the final proposal would look like.
“We received a lot of feedback,” he added. “It will help us strike the right balance.”
Barr responded to accusations by the banking industry that higher capital requirements would raise the prices of mortgages and other loans for consumers.
The typical interest rate on mortgages under the proposed system would rise to about 5.03% from 5%, he said, adding that the proposed rules would have a “very modest” impact on the cost of credit.
Bank officials “talk all the time” about potential risks to the banking system posed by private credit and other alternative lenders and about how to regulate those risks, Barr said.
He said that although private lenders operate outside the regulated banking system, banks still act as counterparties and extend loans to them.
“There's no easy answer” for how to organize the entire system, Barr said. If regulations are too onerous, he said, it will be like “squeezing a balloon,” and the risks may simply appear elsewhere.
At the same time, the banking system needs regulation to ensure the financial world “has a strong core,” Barr said.
Barr's comments came during a talk in Washington, D.C., with Women in Housing and Finance, a member organization for women in housing, finance and development.
Read also: Community Fed advocate Michelle Bowman says the proposed banking reforms go beyond what the law intended
Read also: Fed cop Michael Barr defends higher capital requirements as bankers rage
