Fed Boosts Size of Next Two Special Auctions to $30 Billion
Jan. 4 (Bloomberg) -- The Federal Reserve said it will increase the size of two scheduled auctions of emergency loans by 50 percent to $30 billion beginning with the next offering, scheduled for Jan. 14.
The Fed will continue the loan auctions, designed to increase the amount of cash available in the banking system, ``for as long as necessary,'' it said in a statement released today.
The second auction will be held on Jan. 28. Results will be announced the day following each auction and the sales will settle three days after. The Fed will announce its plans for February by Feb. 1, the statement said.
The Board of Governors of the Federal Reserve System established the temporary Term Auction Facility, dubbed TAF, in December to provide cash after interest rate cuts failed to break banks' reluctance to lend amid concern about losses related to subprime mortgage securities. The program will make funding from the Fed available beyond the 20 authorized primary dealers that trade directly with central bank.
The Fed uses the TAF to auction funds to institutions that are eligible to borrow at their discount window. All TAF credit must be fully collateralized, and TAF accepts a broad range of collateral at the same values and margins applicable for the other Federal Reserve lending programs.
On Dec. 21 the Fed and European Central Bank loaned $30 billion in 35-day funds at an interest rate of 4.67 percent, 2 basis points more than at the initial auctions four days earlier. The rates were less than the 4.75 percent banks are charged to borrow directly at the Fed's discount window, suggesting the central bank was making progress in alleviating a credit crunch. The Fed auctioned $20 billion in each of those instances.
Policy makers have cut the Fed's target rate for overnight loans between banks by 100 basis points to 4.25 percent since September, and the discount rate by 150 basis points.
BLOOMBERG
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