Specifically, it is expanding its security lending program by offering a new Term Securities Lending Facility in which it will lend up to $200 billion of Treasury securities to primary dealers for 28 days--instead of just overnight under the current program. The weekly auctions will begin on March 27, 2008.
Other measures taken by the Federal Open Market Committee include increases in its existing temporary reciprocal currency arrangements--that is, swap lines--with the European Central Bank and the Swiss National Bank, arrangements that will provide $30 billion and $6 billion to the ECB and the SNB, respectively, representing increases of $10 billion and $2 billion. These measures follow the Fed's actions last Friday, which boosted the size of the Term Auction Facility to $100 billion and the start of a series of term repurchase transactions that will cumulate to $100 billion.
Tuesday's action, Clifton Rogers, SVP of the Real Estate Roundtable tells GlobeSt.com "is a good step in the right direction. It will bring liquidity to where it is needed the most and help financial institutions be more comfortable buying and bidding on securities."
Interestingly, the Roundtable had posed a related action the Fed should take, in a letter it sent to Congress last week--namely to start purchasing loans and asset backed securities, including CMBS. In a letter to the House Financial Services committee chairman Barney Frank (D-MA) and Senate Banking Committee chairman Christopher Dodd (D-CT), Roundtable president and CEO Jeffrey DeBoer asked that Congress amend section 14 of the Federal Reserve Act, thus authorizing the Federal Reserve to purchase loans and asset-backed securities.
"A series of auctions for outright security purchase and sales could be conducted on a competitive basis with the primary dealer group and other qualifying sellers andbuyers," DeBoer suggested in his letter. "The Fed would specify the terms of the types of assets they would be willing to purchase, establishing specific criteria such as loan to value ratios, credit quality, delinquency rates and other performance measures." Such a plan, he concluded, "would provide markets with a 'mark' and help stabilize credit markets, and it would not require the use of appropriated funds."
"We felt it is important to re-establish a bid side to bring liquidity to the mortgage markets," Rogers says. Giving the Fed free reign to buy CMBS and other securities, "would build upon its action [on Tuesday] and its previous five interest rate cuts."
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
