The Fed increased liquidity provisions to financial institutions yet again. This measure -- that comes as response to the markets’ pressing request for funding -- underscores the Fed continuing concern with the vulnerability of the financial system. Today’s measures reinforced all three of the Fed innovative instruments to manage the current turmoil: Term Auction Facilities (TAF), Term Securities Lending Facilities (TSFL) and temporary reciprocal currency arrangements with other central banks:
- 1. The Fed increased the amount auctioned in TAF’s from $50 billion to $75 billion. This comes as a response to the fact that demand for Term Auction Facilities (TAF) has exceeded supply throughout the last two months, gradually increasing the rate of this instrument relative to fed funds.
- 2. The Fed authorized an expansion in the collateral that can be pledge by primary dealers interested in TSLF’s. This collateral may now include AAA/Aaa-rated asset backed securities.
- 3. The FOMC authorized a further increase in its existing temporary reciprocal currency arrangements with the European Central Bank (from $30 billion up to $50 billion) and the Swiss National Bank (from $6 billion up to $12 billion). The FOMC also extended the term of these arrangements through January 30, 2009.
