This is My Shocked Face

I'm shocked! Shocked, I tell you! To find that gambling is going on this establishment

It turns our that the Federal Reserve bailout launched in the wake of the collapse of Silly-Con Valley Bank is now being abused by allegedly healthy banks in order to pad their bottom lines.

Well, slap my tits, and call me Shirley:

An emergency lending program the Federal Reserve created during the 2023 banking crisis has turned into easy money.

Borrowing from the Fed’s bank term funding program has increased to new highs in recent weeks, a strange consequence of the market’s flip to forecasting multiple Fed rate cuts over the coming 12 months.

The rate banks pay to use the program, BTFP for short, is tied to future interest-rate expectations. Now that investors have priced in a series of rate cuts later this year, banks are able to pocket the difference between what they pay to borrow the funds and what they can earn from parking the funds at the central bank as overnight deposits.

In March, the failure of Silicon Valley Bank spooked depositors, sending banks scrambling for cash. The Fed rushed to their aid, taking beaten-down bonds at face value as collateral for one-year loans. The program’s creation helped calm depositors into believing banks had access to ample funds.

 ………

A dramatic reversal in rate expectations in recent months has changed the math.

While the Fed offers financing below 5% through its rescue program, it is currently paying banks 5.4% on parked reserve balances.

So the bank borrows from the Federal Reserve at, for example, 4¾% and then deposits that money at 5.4%, and pockets 0.65% using the Federal Reserve's money.

Sweet, unless you are, you know, a taxpayer.

This is what happens when you let the inmates run the asylum.