Lyn Alden's avatar
Lyn Alden lyn@primal.net 2 years ago
The Fed's Bank Term Funding Program (BTFP), the facility that they introduced after the March 2023 banking crisis, now offers lower borrowing rates than the Fed pays in interest on reserve balances. So, banks are arbitraging this by borrowing from the facility (i.e. from the Fed) at one interest rate, and then depositing that borrowed money with the Fed to earn a higher interest rate, and thus are earning that risk-free spread. They're arbitraging the Fed.
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Replies (40)

Jose Sammut's avatar
Jose Sammut 2 years ago
They borrow against depreciated collateral at par, so this is doubly bad. 😬
Michael's avatar
Michael michael@bitbubblex.com 2 years ago
It's a striking example of how financial institutions navigate central bank policies to optimize their financial positions. This arbitrage might be seen as a creative use of financial instruments or a sign of inefficiencies in the design of central bank programs.
a source familiar with the matter's avatar
a source familiar with the matter 2 years ago
But they have to have collateral to do it So in essence the Fed has created a pump to suck up Treasuries (ie monetize the debt ie inflate)
insta's avatar
insta 2 years ago
Just a more opaque and hidden way for the Fed to give the banks money to bail them out
Hazey's avatar
Hazey hazey@iris.to 2 years ago
Whenever they do something stupid like this it is to avert systemic failure.
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nobody 2 years ago
It's funny how the Bank Funding Term Program got renamed to the Bank Term Funding Program when the wizards realized that it was too easy to use the acronym synonymously with Butt Fuck The People.
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npub1lezf...3dm9 2 years ago
I'm sure they will offer this opportunity to the little guy too! 🤣
Eric Gens's avatar
Eric Gens ragnorosis@iris.to 2 years ago
This creaking system somehow keeps going. It's clear to most, even those outside finance, that it's going to break down at some point, but I absolutely cannot believe how long it continues. I guess I shouldn't be surprised, given how long Japan has been going. Complacent population can allow the game to run into true absurdity.
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BKing 2 years ago
Interesting observation about the banks arbitraging the difference between the BTFP and interest on reserves. Do you think this was an intentional move by the Fed to encourage more lending by making it advantageous for banks to borrow from this facility? Or was it an unintended consequence that the Fed may need to address?
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