Banks Take Advantage of a Free Money Arbitrage Opportunity Offered by the Fed

Lesson of the Day: Banks do not turn down free money. The Fed created a Bank Term Funding Program (BTFP) to bail out banks that foolishly levered into long-term interest rate bets that went sour. The BTFP program allows banks to swap underwater US treasuries with the Fed at par value, effectively bailing out the speculators.