Editor’s note: This quick note is written by a human analyst with assistance from the Fedbot :)

The Federal Reserve announced at 7 p.m. on Wednesday that the Bank Term Funding Program (BTFP) will conclude as scheduled on March 11, 2024. This decision follows earlier indications by Federal Reserve Vice Chair for Supervision Michael Barr and New York Fed President John Williams. BPI’s Bill Nelson has suggested several reasons for the interesting timing of the press release.

In addition to this announcement, the Fed has also increased the rate on new loans made through the BTFP from now until March 11th. Advances under the BTFP will now be at the one-year Overnight Index Swap (OIS) rate plus 10 basis points, but not lower than the interest rate on Reserve Balances (IORB) effective that day. This adjustment marks a 52bp increase, from 4.88% on January 24, 2024, to 5.40% on January 25, 2024. The increase effectively eliminates the arbitrage opportunity (Figure 2) that had recently driven a surge in BTFP usage (Figure 1).

Data from the latest H.4.1 release today indicates a record-high usage of the BTFP at $167.768 billion as of this Wednesday. With the implementation of this new rate, it is anticipated that new borrowings under the BTFP will rapidly decline to zero. This trend is expected to become apparent in the weekly releases over the next few weeks.

According to the FAQ, the Federal Reserve will publicly disclose information concerning the Program one year after it ends.