(Bloomberg) -- Banks borrowed a record amount from the Federal Reserve’s Bank Term Funding Program as two of the central bank’s top policymakers signaled the emergency lending facility will shutter as planned come March.

Data from the Fed showed $147.2 billion in borrowing from the BTFP in the week through Wednesday, Jan. 10. That compares to the prior all-time high of $141 billion reached last week. 

Launched amid last year’s banking crisis, the BTFP allows banks and credit unions to borrow funds for up to one year, pledging US Treasuries and agency debt as collateral valued at par. The rate for these advances will be the one-year overnight index swap rate plus 10 basis points. 

On Tuesday, Michael Barr, the Fed’s vice chair for supervision, said in Washington that he expects borrowing from the lending facility, originally designed in response to an “emergency situation,” to continue until its scheduled expiry on March 11. New York Fed President John Williams later echoed Barr’s comments, saying the BTFP had served its intended purpose of providing liquidity.  

Lately, the BTFP rate has come down as traders boost bets on more rate cuts in 2024 — now about 150 basis points, according to Fed-swaps pricing. Institutions have found it cheaper to borrow cash through the nascent facility, currently at 4.87%, rather than turning to the discount window, which charges eligible institutions 5.5%. In fact, banks tapped the window for about $2.1 billion in the week through Jan. 10, well off the all-time high of $153 billion in March. 

For banks, the drop in BTFP borrowing costs spells a larger arbitrage opportunity, one where institutions borrow from the facility before parking the proceeds in their accounts at the Fed to earn interest on reserve balances — currently 5.40%. That spread is now around 53 basis points, which is just off the record 57 basis points reached on Dec. 28.

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