Nasdaq jumps up and down after US government announces bailout

Volatility in the markets has been unusually high today, with the tech-heavy Nasdaq index rising more than 2% ahead of the Frankfurt open, only to erase most of the gains quickly afterward.

In the middle of the EU session, the index still traded higher as investors reacted to the recent bank failures and government measures to save them.

A new round of bailouts announced

Over the weekend, the US Treasury reported that New York State authorities are closing Signature Bank, a large New York bank and that all Signature Bank and Silicon Valley Bank depositors will be able to retrieve their funds on Monday.

However, on the other hand, there will be no protection for shareholders and certain unsecured creditors. Also eliminated is the senior management. As required by law, any losses incurred by the Deposit Insurance Fund to support uninsured depositors will be recouped by a special levy on banks.

As we process the shock of yet another small bank failure, the Federal Reserve has just released a statement stating that

“In order to support American businesses and households, the Federal Reserve Board announced on Sunday that it would make additional funding available to eligible depository institutions to ensure that banks can meet the needs of all depositors. This step would strengthen the banking system’s capacity to secure deposits and maintain the economy’s access to money and credit.”

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The Fed has also stated that it is prepared to address any potential liquidity problems, which has led to the first bailout acronym of the current crisis: the Bank Term Financing Program, or BTFP. Some additional details:

The funding will be made available through the establishment of a new Bank Term Funding Program (BTFP), which will provide loans of up to one year to banks, savings associations, credit unions, and other eligible depository institutions that pledge US Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be appraised at the par value. The BTFP will provide an additional source of liquidity against high-quality securities, removing the requirement for an institution to sell these securities promptly during times of stress.

The Fed says that the Treasury Department will provide a guarantee of up to $25 billion from the Exchange Stabilization Fund for the BTFP.

In light of the current turmoil in the financial industry, Goldman Sachs said on Sunday that the Fed will now refrain from raising rates at its March 22 meeting. Instead, Goldman projected a 25-basis-point increase in March.