Fed Leads Liquidity Injection

123jump.com Staff
11 Mar, 2008
New York City

The Federal Reserve Bank in coordination with other central banks offered to add liquidity of $200 billion to credit markets and accept wider securities as collateral. The second coordinated move in four months is designed to increase the willingness among traders to boost confidence and provide incentives to trade. The ECB will offer up to $30 billion in short term auction and the Swiss National Bank will offer up to $6 billion. The Reserve Bank of Australia added $721 million in liquidity.

[R]10:00AM New York – The U.S. led action among central banks around the world pumps liquidity in the credit market by accepting wider quality of collateral.[/R]

The Federal Reserve Bank in coordination with the Bank of Canada, the Bank of England, and the European Central Bank, and Swiss National Bank announced measures to ease liquidity in the funding markets.

The Fed expanded its securities lending program and set up a new Term Securities Lending Facility (TSLF) to primary dealers in exchange of high grade mortgage debts from government agencies and no-agency rated private label residential mortgage debts. The new facility will lend money for 28 days rather than overnight lending as in the existing program.

The new facility will carry out weekly auctions and may lend up to $200 billion of Treasury securities.

The FOMC has authorized increases in its existing temporary reciprocal arrangements or swap lines with the ECB to $30 billion, an increase of $10 billion and with the Swiss National Bank to $6 billion, an increase of $2 billion. These terms of swap lines have been extended till September 30, 2008.

The actions announced today supplement the measures announced by the Federal Reserve on Friday to boost the size of the Term Auction Facility to $100 billion and to undertake a series of term repurchase transactions that will cumulate to $100 billion.