| |
WASHINGTON - The Federal Reserve said Monday it would start to pay interest on bank deposits for the first time and expand bank refinancing operations to 900 billion dollars by year-end in a bid to increase liquidity.
The payment of interest on reserve balances "will give the Federal Reserve greater scope to use its lending programmes to address conditions in credit markets while also maintaining the federal funds rate close to the target established by the Federal Open Market Committee," the central bank said in a statement.
The emergency financial sector bailout passed by Congress and enacted Friday by President George W. Bush accelerated the effective date of authorizing the Fed to begin paying interest on deposit balances to October 1, from a 2006 law that set the date on October 1, 2011.
The Fed said it was "substantially" increasing the size of the Term Auction Facility (TAF) auctions, beginning with Monday's auction of 84-day funds.
The TAF auctions allow banks to borrow from the Federal Reserve for a fixed term at a rate established in the auction, subject to a minimum set by the Fed.
The operations allow banks to borrow at the Fed's discount rate, at an interest rate usually higher than charged on the interbanking market.
The Fed said its regular TAF credit line will expand to 600 billion dollars in October and November and two forward TAF auctions in November will be expanded, "so that 900 billion dollars of TAF credit will potentially be outstanding over year end."
"In addition, the Federal Reserve and the Treasury Department are consulting with market participants on ways to provide additional support for term unsecured funding markets," the central bank said.
"Together these actions should encourage term lending across a range of financial markets in a manner that eases pressures and promotes the ability of firms and households to obtain credit. The Federal Reserve stands ready to take additional measures as necessary to foster liquid money market conditions."
The US Treasury said in a separate statement it would "move rapidly" to implement its new emergency authorities to deal with the financial crisis, but revealed no specific plans to investors desperate for concrete signs of rescue in the worst financial crisis since the 1930s Great Depression.
The Treasury said it was working with the Fed and the Federal Deposit Insurance Corp., its partners in the Bush task force on the financial crisis, to face the "extremely strained" conditions in US and global financial markets.
"The President's Working Group on Financial Markets (PWG) is working with market participants and regulators globally to address the current challenges and restore confidence and stability to financial markets around the world," the Treasury said.
The size, scale and complexity of the financial turmoil "requires that the tools available to policymakers, regulators and supervisors be used in forceful and coordinated ways across regulatory and supervisory agencies in the United States and throughout the world," it said.
With banks unwilling to lend to each other amid the turmoil, virtually seizing up credit flows, both the Treasury and the Fed announced they were "consulting with market participants on ways to provide additional support for term unsecured funding markets."
- AFP/ir
|
