Fed expands funding, to accept more securities
By Steve Goldstein, MarketWatch
Last update: 8:41 a.m. EDT May 2, 2008
NEW YORK (MarketWatch) -- The Federal Reserve, along with other central banks, said Friday that it was increasing the funding it provides to banks and that, for the first time, it was willing to accept bonds backed by auto loans and credit cards.
"In view of the persistent liquidity pressures in some term funding markets, the European Central Bank, the Federal Reserve and the Swiss National Bank are announcing an expansion of their liquidity measures," the Fed said in a statement.
Three-month London interbank offered rate -- a benchmark for lending between banks -- was 2.78% Thursday, well above the 2% Fed funds rate.
The Federal Reserve announced an increase in the amounts auctioned to eligible depository institutions under its biweekly Term Auction Facility to $75 billion from $50 billion, beginning with the auction on May 5.
This increase will bring the amounts outstanding under the TAF to $150 billion.
The Federal Open Market Committee also has authorized further increases in its existing temporary currency-swap arrangements with the European Central Bank and the Swiss National Bank.
These arrangements will now provide dollars in amounts of up to $50 billion and $12 billion to the ECB and the SNB, respectively, representing respective increases of $20 billion and $6 billion.
The Federal Open Market Committee also authorized an expansion of the collateral that can be pledged in the Federal Reserve's Schedule 2 Term Securities Lending Facility auctions.
Primary dealers may now pledge AAA/Aaa-rated asset-backed securities, in addition to already eligible residential- and commercial-mortgage-backed securities and agency collateralized mortgage obligations.
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