iris
Post by Paul
Lyn Alden
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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Paul
Is the Fed intentionally trying to lose money? Do you think this is a strategy to keep the US Treasury from getting those Fed "profits" checks they had been getting prior to the interest rate hikes?
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Steady Elk
Think of it like this: When the Fed loses money that is the same thing as the Fed creating money. So in essence, this is just another obfuscated means of increasing the money supply. BTFP is monetary easing.
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