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Fed To Inject $200B Into Credit Markets

WASHINGTON, DC-The Fed is expanding its securities lending program to primary dealers by 28 days by a pledge of other securities.

By Erika Morphy | Updated on March 11, 2008

WASHINGTON, DC-The Federal Reserve is ratcheting up its war on credit-market problems and likely recession into which the US economy has fallen. Acting in coordination with Central Banks in Europe and Canada, it will be injecting $200 billion into the capital markets through weekly auctions, lending Treasuries in exchange for federal agency debt and agency MBS as well as AAA-rated private residential MBS. The goal is to promote liquidity in the markets for Treasury and other collateral.

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.

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.

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