Weekly Update: Bank Term Funding Program
Another BTFP record level this week. This is no surprise as the BTFP rate was materially below Fed Funds, although the Fed finally wised up to the arbitrage game banks were playing and lifted the BTFP rate to 5.40% today, which is a shade under the 5.50% Primary Credit rate at the Fed’s Discount window. Look for the Fed’s Discount window to lend to troubled banks once the BTFP expires on March 11th. We will track Discount window activity as we expect Discount window levels to spike 20-30x in March from today’s $2.8 billion level.
The Bank Term Funding Program (BTFP, bail out/QE) had approximately $167.8 billion in outstanding loans as of Wednesday this week, up from $161.5 billion a week ago. Should the Fed allow the BTFP to expire on March 11th, 2024, I would expect the Fed’s Discount window loan balance to move materially higher from today’s position, which is $2.8 billion.
Discount window borrowing last peaked in March 2023 (chart below), just prior to the Fed rolling out the BTFP, which has favorable collateral valuation terms as compared to the Discount window (Terms: BTFP, Discount window).
FEDERAL RESERVE statistical release: https://www.federalreserve.gov/releases/h41/current/