Fed Closes Arbitrage Opportunity with Emergency Loan Program
TL;DR Summary
The Federal Reserve has announced the cessation of new loans through the Bank Term Funding Program (BTFP) and has closed the arbitrage opportunity that allowed banks to exploit the program for profit. The BTFP, created in response to the 2023 bank-panic and liquidity crisis, had inadvertently allowed banks to borrow at lower rates and earn risk-free income. The Fed's decision to adjust the interest rate on new loans effectively shuts down this loophole, marking the end of the arbitrage opportunity.
- “Effective Immediately,” Fed Shuts Down Arbitrage Opportunity with the Bank Term Funding Program (BTFP) WOLF STREET
- Fed Raises Rate on Emergency Loan Program to Stop Arbitrage Yahoo Finance
- Fed is shutting down $161 billion facility that banks had arbitraged MarketWatch
- Borrowing From Fed Emergency Tool Likely Jumped Before Rate Hike Bloomberg
- Demand for Fed Funding Tool Hits Record Before Rate Hike Yahoo Finance
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