Term auction facility
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The Term Auction Facility (TAF) was a temporary program managed by the
Credit crunch
Early in August 2007, the
Creation of facility
On December 11, 2007, the Fed lowered its
As part of an effort to increase dollar liquidity around the world, the Fed coordinated with other central banks to lend simultaneously to depository institutions outside of its jurisdiction, which it cannot lend to directly. On December 11, the ECB held a simultaneous auction, in dollars, and awarded $10 billion at the rate determined by the Fed's auction.[13] To facilitate the provision of U.S.-dollar liquidity by these other central banks, the Fed arranged currency swap lines with the ECB and the SNB in amounts of $20 billion and $4 billion, respectively.
One might question why such a facility is needed in the presence of a discount window where financial institutions can freely borrow directly from the Fed with the same terms as the Term Auction facility. It is argued that banks were reluctant to borrow from the discount window during the financial crisis as that might signal a potential weakness in the financial position of the borrowing bank. [14] Hence, the need for a new monetary policy tool emerged and TAF provided just what they needed to banks.
The Fed used the TAF as a trial of this type of monetary tool, later adding additional facilities such as the Term Securities Lending Facility when it had proved its success and usefulness.[15] The final Term Auction Facility auction was conducted on March 8, 2010. [16]
Extent of lending
The maximum balance of outstanding loans peaked at $483 billion in March 2009, while profits to the Fed on the facility passed $700 million in that year.[17] Converting loans of varying length to a standard 28-days, a total of $6.18 trillion was loaned through TAF,[18] making it one of the most significant of the Fed’s stabilization efforts.
See also
References
- ^ "Federal Reserve and other central banks announce measures designed to address elevated pressures in short-term funding markets" (Press release). Board of Governors of the Federal Reserve System. 2007-12-12. Retrieved 2008-10-23.
- ^ "Term Auction Facility Questions and Answers". Board of Governors of the Federal Reserve. 2008-07-30. Retrieved 2008-10-23.
- ^ Taylor, John B.; Williams, John C. (2008-04-02). "A Black Swan in the Money Market" (PDF). Working Paper: 1.
- ^ "Bank of Canada Temporarily Expands List of Securities Eligible for Term PRA Transactions" (Press release). Bank of Canada. 2007-12-12. Retrieved 2008-10-25.
- ^ "Central Bank Measures to Address Elevated Pressures in Short-term Funding Markets" (Press release). Bank of England. 2007-12-12. Retrieved 2008-10-25.
- ^ "Measures designed to address elevated pressures in short-term funding markets" (Press release). European Central Bank. 2007-12-12. Retrieved 2008-10-25.
- ^ "Swiss National Bank provides US dollar funding" (PDF) (Press release). Swiss National Bank. 2007-12-12. Retrieved 2008-10-25.
- ^ The Street August 9, 2007 Archived June 6, 2011, at the Wayback Machine
- ^ International Herald Tribune August 10, 2007
- ^ Federal Reserve Bank of Dallas, On the Effectiveness of the Federal Reserve's New Liquidity Facilities, May 2008
- ^ FRB: Press Release December 12 http://www.federalreserve.gov/newsevents/press/monetary/20071212a.htm
- ^ FRB: Press Release December 19 http://www.federalreserve.gov/newsevents/press/monetary/20071219c.htm
- ^ ECB: Tender operation allotment "ECB: TAF07001 all". Archived from the original on 2008-06-07. Retrieved 2007-12-20.
- ISBN 978-1-319-26390-4.
- ^ A Tooze, Crashed (Penguin 2019) p. 208
- ^ FRB: Expired Policy Tools http://www.federalreserve.gov/monetarypolicy/expiredtools.htm
- ^ B Wekel, Government Intervention in Response to Financial Turmoil(2011) p. 17-8
- ^ A Tooze, Crashed (Penguin 2019) p. 208