Federal Reserve Announces Bigger Auctions to Banks to Help Ease the Credit Crisis

Discussion in 'Economics' started by crgarcia, Mar 7, 2008.

  1. AP
    Fed Takes New Steps on Credit Crisis

    Friday March 7, 10:43 am ET

    By Jeannine Aversa, Associated Press Writer

    Federal Reserve Announces Bigger Auctions to Banks to Help Ease the Credit Crisis

    WASHINGTON (AP) -- The Federal Reserve is taking bigger steps to ease the nation's credit crisis, including increasing the amount of loans it plans to make available to banks this month to $100 billion.

    The Federal Reserve announced Friday that it will boost the size of auctions planned for March 10 and March 24 to $50 billion each. That is up from the $30 billion limits it had previously announced. The auctions serve as short-term loans to get banks the cash they need to keep lending to their customers.

    The Fed, in a statement, said it planned to continue the auctions for at least six months, and would move to even larger auction amounts if needed.

    In a second step, the Fed said it will make $100 billion available to a broad range of financial players through a series of separate transactions starting on Friday.

    The Fed has been working to pump billions of dollars into the banking system to aid an economy rocked by the subprime mortgage crisis and the severe tightening of credit. The central bank started its new type of auction in December to provide short-term loans to cash-strapped banks in hopes of keeping them lending. So far, the Fed has made available a total of $160 billion in short-term loans to banks through six auctions.

    Fears are growing that the country is teetering on the edge of a recession, if one has not already begun.

    The picture worsened just after the Fed's announcement Friday when the Labor Department released a report showing employers slashed another 63,000 jobs in February, the most in five years.

    Senior Federal Reserve officials said the steps announced Friday were geared to providing relief to credit markets, which have deteriorated further in recent days, and not related to the weak employment figures.

    A meltdown in the housing and credit markets has made banks and other financial institutions reluctant to lend to each other, causing a cash crunch. Financial companies wracked up multibillion-dollar losses as investments in mortgage-backed securities soured with the housing market's bust. Problems first started in the market for subprime mortgages-- those made to people with blemished credit histories. However, troubles have spread to other areas.