The curtain will probably close in a few months on the bank backstop the Fed established in the wake of SVB’s dramatic implosion. Or at least according to some observers.

Over the past several weeks, reader interest in Bank Term Funding Program balances was piqued by a steady increase in loans outstanding as reported each week by the Fed.

I should quickly note that “piqued” is a relative term. The BTFP discussion is esoteric. That’s not to suggest it isn’t important or relevant, but anything to do with money/funding markets is almost by definition a niche discussion.

Those of you following along know that balances rose above $131 billion last week.

As the simple figure shows, what was a steady increase in borrowing from the facility inflected fairly sharply in recent weeks.

The arb opportunity mentioned in the chart text is the spread between the BTFP rate (what you’ll pay the Fed to borrow against your collateral) and what you can earn on your reserves at the Fed.

That BTFP rate is OIS+10bps. That’s obviously come down of late amid rampant speculation over the trajectory of Fed funds following the central bank’s dovish pivot. Thus, the spread has ballooned — to 56bps, as illustrated and discussed last week in “The Free Money Fed Arb.”

Hat tip to Bloomberg’s Alex Harris — she’s covered this unfolding subplot pretty closely in recent days, and on Tuesday she quoted money market mainstay Wrightson ICAP which called the BTFP “a hot topic.” Balances, the consultancy said, in a recent note, “probably [have] room for further growth heading into the new year.”

Wrightson’s Lou Crandall said the Fed’ll probably end the program on its one-year anniversary. The banking environment, he noted, has normalized, so it isn’t entirely clear how the Fed would justify an extension.

I’ve variously suggested BTFP could stick around, but… well, I’ve been wrong before. Or at least that’s what a succession of erstwhile friends and acquaintances would tell you. (Their claims couldn’t be independently verified.)

The problem isn’t so much ending BTFP as it is convincing banks to tap the Fed’s other facilities. As Harris noted, the Fed’s long sought to destigmatize the discount window, to no avail. The Standing Repo Facility, meanwhile, is supposed to insure against a repeat of the funding seizures markets succumbed to in September of 2019.

Harris quoted the same Wrightson note with regard both to the stigma discussion and the SRF which, as Crandall put it, can only be “a frictionless ceiling tool” if banks who access the facility conceptualize of it “as a commercial decision and not as a reputational or regulatory risk.”

Whatever the case, Crandall thinks BTFP is on the way out. Of course, when it comes to the Fed’s alphabet soup of liquidity facilities, nothing’s ever “canceled,” exactly. Rather, programs are mothballed. If BTFP is switched off, it’ll be switched back on during the next crisis. Or the next plague.