zt Fed Statement on Measures to Address Funding `Pressures'
Fed Statement on Measures to Address Funding `Pressures': Text

By Washington newsroom +1-202-624-1820

Dec. 12 (Bloomberg) -- The following is the text of a news release today from the U.S. Federal Reserve in Washington:

Today, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing measures designed to address elevated pressures in short-term funding markets.

Federal Reserve Actions

Actions taken by the Federal Reserve include the establishment of a temporary Term Auction Facility (approved by the Board of Governors of the Federal Reserve System) and the establishment of foreign exchange swap lines with the European Central Bank and the Swiss National Bank (approved by the Federal Open Market Committee).

Under the Term Auction Facility (TAF) program, the Federal Reserve will auction term funds to depository institutions against the wide variety of collateral that can be used to secure loans at the discount window. All depository institutions that are judged to be in generally sound financial condition by their local Reserve Bank and that are eligible to borrow under the primary credit discount window program will be eligible to participate in TAF auctions. All advances must be fully collateralized. By allowing the Federal Reserve to inject term funds through a broader range of counterparties and against a broader range of collateral than open market operations, this facility could help promote the efficient dissemination of liquidity when the unsecured interbank markets are under stress.

Each TAF auction will be for a fixed amount, with the rate determined by the auction process (subject to a minimum bid rate). The first TAF auction of $20 billion is scheduled for Monday, December 17, with settlement on Thursday, December 20; this auction will provide 28-day term funds, maturing Thursday, January 17, 2008. The second auction of up to $20 billion is scheduled for Thursday, December 20, with settlement on Thursday, December 27; this auction will provide 35-day funds, maturing Thursday, January 31, 2008. The third and fourth auctions will be held on January 14 and 28, with settlement on the following Thursdays. The amounts of those auctions will be determined in January. The Federal Reserve may conduct additional auctions in subsequent months, depending in part on evolving market conditions.

Depositories will submit bids through their local Reserve Banks. The minimum bid rate for the auctions will be established at the overnight indexed swap (OIS) rate corresponding to the maturity of the credit being auctioned. The OIS rate is a measure of market participants' expected average federal funds rate over the relevant term. The minimum rate for the December 17 auction along with other auction details will be announced on Friday, December 14. Noncompetitive tenders may be accepted beginning with the third auction. The results of the first auction will be announced at 10 a.m. Eastern Time on December 19. The schedule for releasing the results of later auctions will be determined subsequently. Detailed terms of the auction and summary auction results will be available at www.federalreserve.gov.

Experience gained under this temporary program will be helpful in assessing the potential usefulness of augmenting the Federal Reserve's current monetary policy tools--open market operations and the primary credit facility--with a permanent facility for auctioning term discount window credit. The Board anticipates that it would seek public comment on any proposal for a permanent term auction facility.

The Federal Open Market Committee has authorized temporary reciprocal currency arrangements (swap lines) with the European Central Bank (ECB) and the Swiss National Bank (SNB). These arrangements will provide dollars in amounts of up to $20 billion and $4 billion to the ECB and the SNB, respectively, for use in their jurisdictions. The FOMC approved these swap lines for a period of up to six months.

Information on Related Actions Being Taken by Other Central Banks Information on the actions that will be taken by other central banks is available at the following websites. Bank of Canada ( http://www.bankofcanada.ca ) Bank of England ( http://www.bankofengland.co.uk ) European Central Bank ( http://www.ecb.int ) Swiss National Bank ( http://www.snb.ch )

Statements by Other Central Banks Bank of Japan ( http://www.boj.or.jp ) Swedish Riksbank ( http://www.riksbank.com )

[TAGINFO]

Last Updated: December 12, 2007 09:00 EST

zt Fed, ECB, Central Banks Coordinate to Add Liquidity (Update2)
Fed, ECB, Central Banks Coordinate to Add Liquidity (Update2)

By Scott Lanman

Dec. 12 (Bloomberg) -- The Federal Reserve plans to ease ``elevated'' short-term funding pressures by injecting cash to banks through auctions and providing $24 billion in currency swap lines to the European and Swiss central banks.

The Fed is coordinating the measures with the European Central Bank, Bank of England, Bank of Canada and Swiss National Bank, the Fed said in a statement in Washington. The Fed will auction term funds to banks against a ``wide variety of collateral.'' All ``generally sound'' institutions can participate, the statement said.

The central banks are taking the steps after demand for cash sent borrowing costs climbing. The Fed's previous attempts to ease the credit squeeze that began in August have failed to have lasting effects. One gauge watched by central bankers, the three- month dollar London Interbank Offered Rate, rose to 5.15 percent a week ago, the highest in almost two months.

``It's an important policy response to the deterioration in credit market conditions that we've experienced in recent months,'' said Neil MacKinnon, a former U.K. Treasury official who is chief economist at London-based hedge fund ECU Group. ``It's a coordinated effort and that's important; it suggests the central banks are ready to provide liquidity on demand.''

Stocks rallied in Europe and U.S. stock futures jumped after the announcement. Europe's Dow Jones Stoxx 50 index rose 0.5 percent to 4,473.57 at 3:10 p.m. in Frankfurt. Futures on the Standard & Poor's 500 stock index advanced 2 percent to 1,507.80.

`Under Stress'

``By allowing the Federal Reserve to inject term funds through a broader range of counterparties and against a broader range of collateral than open market operations, this facility could help promote the efficient dissemination of liquidity when the unsecured interbank markets are under stress,'' the Fed statement said.

In addition, the Federal Open Market Committee authorized ``temporary reciprocal currency arrangements,'' or swap lines, for up to six months, with the European Central Bank of as much as $20 billion and $4 billion to the Swiss National Bank ``for use in their jurisdictions.''

Yesterday, U.S. stocks had their biggest drop in a month and two-year Treasury yields plummeted after the Federal Open Market Committee lowered the benchmark rate by a quarter-point to 4.25 percent and said cumulative cuts of 1 percentage point this year should promote ``moderate growth.''

Some investors expected a larger reduction of a half-point to stave off a recession. The Fed's board also reduced the discount rate, covering direct loans to banks, by a quarter point to 4.5 percent, half of what many economists predicted.

The Fed's first auction of term funds will be $20 billion on Dec. 17. The second auction will provide up to $20 billion, taking place Dec. 20. The central bank plans two more auctions, Jan. 14 and Jan. 28, with possible additional operations thereafter, the Fed said.

To contact the reporter on this story: Scott Lanman in Washington at [email protected]

Last Updated: December 12, 2007 09:27 EST