Record demand for 'crisis' funding ahead of Fed's move

While the Fed raised interest rates in the program it introduced for the banking crisis, it was observed that banks showed record demand for the program before this move. While interest rates were raised in the Fed's crisis program, it was stated that banks showed record demand for the program before. The US Central Bank Fed decided to raise the interest rates on loans provided to banks under the emergency lending program (Bank Term Funding Program-BTFP) that was put into effect last year when the regional banking crisis emerged. The decision was made after banks that wanted to evaluate the attractive costs increased their demand in recent weeks. The data announced by the Fed revealed that this interest rate had broken a record before the increase. Accordingly, demand increased to approximately $6.3 billion in the week ending January 24. This means that borrowing through this program has increased by more than $50 billion since mid-November. The Fed announced that this borrowing interest rate would “not be lower” than the borrowing interest on reserve balances valid on the day the loan was granted. Prior to the hike, the BTFP borrowing rate was around 4.88%, about 52 basis points lower than interest paid on reserve balances. “The Fed was right to make this change. From a monetary policy perspective, it made no sense for this mismatch to continue,” said Ian Lyngen, head of U.S. interest rate strategy at BMO Capital Markets.