Nov 26 (Reuters) - The U.S. Federal Reserve on Tuesday
opened an $800 billion lending facility to support the market
for consumer debt, particularly mortgage loans.
Specifically, the Fed will buy $100 billion in fresh debt
from mortgage-finance companies and $500 billion in home loan
securities. Another $200 billion will be used to help soak up
securities backed by consumer loans -- the Treasury Department
chipped in $20 billion to cover losses on that program.
The following is a look at the Fed's evolving liquidity
toolkit.
DISCOUNT WINDOW
The discount window is the Fed's traditional way of
providing liquidity to depository institutions that it
regulates. The Fed's first liquidity salvo was on Aug. 17,
2007, when it unexpectedly lowered the discount rate by a
half-percentage point, narrowing the spread above the benchmark
federal funds rate -- the rate banks charge each other for
loans -- to a half-percentage point. It narrowed the spread to
just a quarter point on March 16.
The Fed accepts a broad range of collateral for loans at
the discount window.
SHORING UP MONEY MARKET MUTUAL FUNDS, MORTGAGE DEBT
The Fed on Sept. 19 said it would make discount window
loans to financial institutions to allow them to buy
asset-backed commercial paper from money money market mutual
funds. It also said it would buy notes issued by mortgage
agencies Fannie Mae, Freddie Mac and Federal Home Loan Banks.
Tuesday's move expands those debt purchases by $100 billion and
mortgage security purchases by $500 billion.
TERM ASSET-BACKED SECURITIES LOAN FACILITY
The Fed on Nov. 25 announced it will lend up to $200
billion on a non-recourse basis to holders of some AAA-rated
asset-backed securities (ABS) that hold fresh consumer and
small business loans. The Treasury will pitch in $20 billion to
help underwrite those investments.
COMMERCIAL PAPER FUNDING FACILITY (CPFF)
The Fed on Oct. 7 said it would fund purchases of highly
rated, U.S.-dollar denominated, three-month commercial paper.
Purchases will be made through a special purpose vehicle that
would begin purchases on Oct. 17. The CPFF will cease purchases
on April 30, 2009, unless extended.
MONEY MARKET INVESTOR FUNDING FACILITIES (MMIFF)
The Fed on Oct. 21 announced a measure to help restore
liquidity to money markets by facilitating lending by mutual
funds and investors. The facility will be authorized to buy
$600 billion in certificates of deposits and commercial paper
with remaining maturities of 90 days or less. The facility is
scheduled to wind down starting on April 30, 2009.
SWAP LINES WITH OTHER CENTRAL BANKS
The Fed has established several currency swap lines with
other central banks so they have U.S. dollars to lend in their
markets. All of the swaps initially had set limits, but on Oct.
13 the Fed lifted the cap on its swaps with the European
Central Bank, Swiss National Bank and Bank of England. On Oct.
14, it erased the upper limit on its line with the Bank of
Japan. The Fed also has authorized swap lines with the central
banks of Canada, Norway, Australia, Sweden and New Zealand.
PRIMARY DEALER CREDIT FACILITY (PDCF)
Traditionally, the Fed has lent only to insured depository
institutions through its discount window. However, on March 16
it launched a new facility for investment banks, marking the
first time since the Great Depression that it had lent to
non-depositories. Initially, the program was to sunset after
six months, but the Fed has extended it until Jan. 30, 2009.
TERM SECURITIES LENDING FACILITY (TSLF)
Under the $200 billion TSLF, the New York Federal Reserve
Bank conducts weekly auctions of 28-day loans of Treasury
securities to primary dealers.
AUCTION OF TERM SECURITIES LENDING FACILITY OPTIONS
The Fed authorized the New York Fed to auction options for
primary dealers to borrow securities from the TSLF. The Fed
said the options will be for exercise ahead of periods when
market conditions have become stressed, like quarter-ends. The
facility allows up to $50 billion of draws on the TSLF, which
would be in addition to the $200 billion that may be offered
under regular TSLF auctions.
TERM AUCTION FACILITY (TAF) LOANS
The Fed launched the Term Auction Facility in December to
provide funds over a longer period to a wider range of banks
and has steadily enlarged it. On Oct. 6, the Fed increased TAF
to $150 billion for both 28- and 84-day auctions. The increases
eventually will lift outstanding amounts under the regular TAF
to $600 billion. The Fed also has held two forward TAF auctions
in which it offered $150 billion in each, although the auctions
were undersubscribed.
TERM REPURCHASE AGREEMENTS
The Fed on March 7 announced a series of 28-day repurchase
transactions for primary dealers, expected to add up to $100
billion.
PAYING INTEREST ON RESERVES
The Fed was authorized as part of the $700 billion bailout
program for financial firms to pay interest on the reserves
banks hold at the central bank, which allows the Fed to expand
its balance sheet without pushing down interest rates.
OTHER TRADITIONAL TOOLS
The Fed also provides liquidity through its traditional
open market operations and securities lending to primary
dealers. The loans of funds or Treasury securities are
typically overnight repurchase agreements against collateral of
Treasuries, agencies, or agency MBS.
Sources:
Federal Reserve
http://www.federalreserve.gov/monetarypolicy/default.htm
New York Fed
http://www.newyorkfed.org/markets/Forms_of_Fed_Lending.pdf
- 
- 
- 
Welcome,
Guest!
News
