Interest Rate Roundup

Friday, May 02, 2008

Fed boosts TAF auctions, adds more types of securities to list of TSLF-acceptable collateral

Here we go again -- the Federal Reserve is boosting the size of its TAF auctions and expanding the list of eligible collateral for TSLF auctions. The TAF is now up to $75 billion per auction, up from $20 billion when initially launched. AAA asset-backed paper is now eligible for TSLF auctions. The complete copy from the Fed's announcement follows:

"Central banks have continued to work together and to consult regularly on liquidity conditions in financial markets. 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 Federal Reserve announced today an increase in the amounts auctioned to eligible depository institutions under its biweekly Term Auction Facility (TAF) from $50 billion to $75 billion, beginning with the auction on May 5. This increase will bring the amounts outstanding under the TAF to $150 billion.

"In conjunction with the increase in the size of the TAF, the Federal Open Market Committee has authorized further increases in its existing temporary reciprocal currency arrangements with the European Central Bank (ECB) and the Swiss National Bank (SNB). These arrangements will now provide dollars in amounts of up to $50 billion and $12 billion to the ECB and the SNB, respectively, representing increases of $20 billion and $6 billion. The FOMC extended the term of these reciprocal currency arrangements through January 30, 2009.

"In addition, the Federal Open Market Committee authorized an expansion of the collateral that can be pledged in the Federal Reserve's Schedule 2 Term Securities Lending Facility (TSLF) 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, beginning with the Schedule 2 TSLF auction to be announced on May 7, 2008, and to settle on May 9, 2008. The wider pool of collateral should promote improved financing conditions in a broader range of financial markets. Treasury securities, agency securities, and agency mortgage-backed securities continue to be eligible as collateral in Schedule 1 TSLF auctions."


  • And no wonder. The Fed is trying to make things easier for financial institutions so that they could more easily pay back the loans they borrowed from the Fed. Defaults on credit cards and mortgages have put banks in tight corner and they lack resources to pay back the Federal Reserve.
    Well, depository institutions will breathe a bit more freely now. What about consumers?

    By Anonymous nowaywalker, at May 6, 2008 at 6:43 AM  

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