Use of Fed Term Funding Tool Rises to Record in Arbitrage Play

Banks borrowed a record amount from the Federal Reserve’s newest backstop facility in the most recent week as increasing wagers on interest-rate cuts made it a more attractive choice.

Data from the Fed showed a record high $136 billion in borrowing from the Bank Term Funding Program, or BTFP, in the week through Dec. 27. That compares to a previous all-time high of $131 billion, reached in the week ended Dec. 20.

Launched amid this 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 ...