Fed Trims Emergency Lending Programs as Crisis Wanes

Discussion in 'Economics' started by ASusilovic, Jun 25, 2009.

  1. June 25 (Bloomberg) -- The Federal Reserve will let one of its emergency programs expire and trim two others in a sign that improving financial markets allow a first step toward ending its unprecedented interventions.

    The three programs provide funds or Treasury securities to securities brokers and money-market funds. They are authorized under a provision allowing loans to nonbanks under “unusual and exigent circumstances.”

    Five other emergency facilities, including foreign currency-swap lines with central banks around the world, will be extended by three months through Feb. 1, the Fed said in a statement in Washington. They would have expired Oct. 30.

    “Conditions in financial markets have improved in recent months, but market functioning in many areas remains impaired and seems likely to be strained for some time,” the Fed said in its statement.

    The Fed didn’t announce the changes yesterday following the Federal Open Market Committee meeting because it needed to coordinate the extension of the currency swap lines with other central banks, a Fed official told reporters on a conference call.

    Liquidity Returns

    Reflecting easing funding pressures among the nation’s banks, the Fed will cut the size of credit auctioned under the Term Auction Facility, which was set up in 2007 and designed to provide cash to commercial lenders. “The amount of credit extended under that facility has been well below the offered amount,” the Fed said.

    Biweekly TAF auctions will be reduced to $125 billion from $150 billion, effective July 13. If market conditions continue to improve, “TAF funding will be reduced gradually further,” the Fed said. The TAF doesn’t have an expiration date.

    Auctions under the Term Security Lending Facility, which makes funds available to primary bond dealers, will also be scaled back to a maximum of $500 billion from the previous $600 billion.

    So-called Schedule 1 TSLF auctions will be suspended effective July 1. That part of the program loaned out Treasuries in return for collateral including federal agency debt and agency-guaranteed mortgage-backed securities.

    TSLF Shrinks

    TSLF Schedule 2 auctions, where collateral accepted also includes investment-grade corporate, municipal, mortgage-backed debt and asset-backed securities, will be conducted every four weeks, instead of every two weeks, and the total amount offered will be reduced to $75 billion.

    The TSLF Options Program will be suspended effective with the maturity of outstanding June TOP options, the Fed said. Again, the Fed is prepared to scale back the program further as market conditions improve, the statement said.

    While there are no outstanding loans under the Primary Dealer Credit Facility, the Fed extended that resource through Feb. 1. The PDCF was set up in March last year at the time of the collapse of Bear Stearns Cos. to provide direct loans to securities dealers.

    The PDCF will remain “in the near term, while financial market conditions remain somewhat fragile,” the Fed said. The central bank official told reporters that one concern is possible funding strains that can typically arise at the end of the calendar year.


    Is that good news or bad news ?:confused:
  2. Daal


    Fed Funds Futures are going vertical so its not good or bad, its dovish!
  3. the ppt and falsified unemployment #s does not a fixed economy make (inferred from zerohedge's article last week on unemployment claims).

    so the fed is thinking they're going to get it just right lol. let's just inflate and get this over with already. we all know the imposibility of the task and the eventual endgame, get to it already.
  4. It is not that the Fed isn't lending

    It is that the banks don't want to receive Fed loans, to keep their -undeserved- executive compensation going.