The growing gap between the rate on the Federal Reserve’s nascent funding facility and what the central bank pays institutions parking reserves suggests officials will let the program expire in March, according to Wrightson ICAP.
The Fed introduced the Bank Term Funding Program, or BTFP, earlier this year as the banking crisis roiled markets. The program allows banks and credit unions to borrow funds for up to one year, pledging US Treasuries and agency debt as collateral valued at par. The rate for these loans — one-year overnight index swaps plus 10 basis points — is currently 4.84% and 56 basis points lower than the rate for interest on reserve balances.