In the Dead of Night, the Fed Ends the Bank Term Lending Program

Last night the Fed announced that the Bank Term Lending Program, an emergency bank lending facility set up days after Silicon Valley Bank failed, will terminate as scheduled on March 11. This was never quantitative easing, and its end is not quantitative tightening. Until March 11, banks will still be able to lock in new borrowings for up to a year under the program. A surge of recent utilization creates the impression that banks are still fragile. But as markets have become confident that rate cuts are coming soon, the program in fact is an arbitrage in which banks can borrow from the Fed at a lower one-year rate and lend back to the Fed at a higher overnight rate. Last night’s announcement adjusts the terms of the program to prevent that arbitrage going forward. This suggests that the program is indeed no longer necessary, and indeed that banks are alive and well and gaming the Fed.