Fed’s rosier outlook could mean end of emergency lending facility
Kyle Campbell
Recent forecasts from the Federal Reserve projecting greater stability in 2024 could spell the end for an increasingly popular funding facility at the central bank…Karen Petrou, managing partner at Federal Financial Analytics, said removing the facility could have consequences…”As with all its emergency fixes, the Fed is in a mighty pickle if it closes the BTFP,” Petrou said. “Banks continue to sit on large unrealized losses and love this security blanket.” Petrou noted that the program provides cheaper funding than the Fed’s official last resort lending facility, the discount window, as well as other funding sources, such as the Federal Home Loan Banks and the private repurchase agreement market. As commercial deposits continue to trend down — having fallen by $900 billion since their peak in April 2022 — Petrou said banks want as many alternative funding options as possible. But, she noted, this preference alone is not enough to justify reauthorizing the BTFP. “The window was meant to address an emergency and the Fed can’t rationalize this subsidy and the risk it takes if there’s no emergency,” Petrou said. “As with [quantitative easing], it’s a lot easier for the Fed to throw billions to banks than get them back.”
https://www.americanbanker.com/news/feds-rosier-outlook-could-mean-end-of-emergency-lending-facility