Fed Easing Liquidity in Funding Markets - US Market up more than 2%

Fed Easing Liquidity in Funding Markets

The Federal Reserve on Tuesday announced it is ramping up efforts to provide more relief to cash-strapped financial institutions, a coordinated action with other central banks aimed at easing a global credit crises that threatens to push the U.S. economy into its first recession since 2001

Washington – The U.S. Federal Reserve announced that G-10 central banks are continuing to work together to address liquidity pressures, with the Fed expanding its securities lending program by $200 billion.
Under the new Term Securities Lending Facility (TSLF), the Fed will lend up to $200 billion in Treasury securities to primary dealers secured for a term of 28 days (rather than overnight, as in the existing program) by a pledge of other securities, including federal agency debt, federal agency residential mortgage-backed securities (MBS) and non-agency AAA/Aaa-rated private-label residential MBS.

The TSLF is intended to promote liquidity in the financing markets for Treasury and other collateral and to foster the more general functioning of financial markets.

Securities will be made available through an auction process, held on a weekly basis beginning on March 27, 2008.

The FOMC also authorized increases in its existing temporary reciprocal currency arrangements, also known as swap lines, with the European Central Bank and the Swiss National Bank. These arrangements will now provide dollars in amounts of up to $30 billion and $6 billion to the ECB and SNB respectively, representing increases of $10 billion and $2 billion.

The FOMC extended the term of these swap lines through Sept. 30, 2008.

Joining the Fed in the announcement are the Bank of Canada, the Bank of England, the European Central Bank and the Swiss National Bank.


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