(Bloomberg) -- Borrowing from the Federal Reserve’s emergency funding program dried up, even dropped, after policymakers suddenly slammed the door on a risk-free arbitrage trade just weeks ahead of the facility’s scheduled closure.

Loans outstanding at the Bank Term Funding Program slid to $165 billion in the week through Wednesday, Jan. 31, Fed data showed. That compares to the all-time high of $168 billion reached the week prior and an indication that institutions are opting to repay their borrowings instead. 

Top officials last week adjusted the rate for borrowing at the BTFP so that it “be no lower” than that of reserve balances on the day the loan is made, effectively ending access to funds at more attractive terms. Officials also signaled the program, unveiled during the regional banking crisis to ease stress in the financial system, would not be extended beyond its March 11 deadline.

There’s been renewed focus on the banking system this week after the shares of New York Community Bancorp, one of the winners as peers struggled last year, fell by a record amount on Wednesday after it reported a surprise loss tied to deteriorating credit quality and a cut to its dividend. Investors are worried that its fourth-quarter results are the harbinger of the industry’s next source of pain: commercial real estate. Shares of regional banks dropped again Thursday. 

In the central bank’s latest policy statement released on Wednesday, the Federal Open Market Committee omitted the reference to a sound and resilient banking system.

Before the change last week, the rate for this borrowing was tied to market swap rates, which have gone down in recent months as traders boosted bets on monetary easing from the Fed. On Jan. 24, banks and credit unions could tap the BTFP for one-year loans at 4.88% — some 52 basis points lower than the interest paid on reserve balances. 

Institutions had found it cheaper to borrow cash through the newer facility rather than turning to the discount window, which charges eligible institutions 5.5%. Yet banks tapped the window for $3.2 billion in the week through Jan. 31, which is up from $2.8 billion the prior week, but well off the all-time high of $153 billion in March.

For banks, the drop in BTFP borrowing costs had spelled a larger arbitrage opportunity, one where institutions could borrow from the facility before parking the proceeds in their accounts at the Fed to earn interest on reserve balances. Borrowing had jumped by more than $50 billion since mid-November after the program’s rate increasingly fell below the rate at which institutions could earn money by parking reserves at the Fed. b

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