Fed Takes Added Liquidity Measures

The Federal Reserve, in conjunction with several other central banks, has announced new measures to promote liquidity in financial markets. Under the new Term Securities Lending Facility, the Fed will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days (rather than overnight, as in the existing program) by a pledge of other securities, including federal agency debt, agency residential-mortgage-backed securities, and nonagency triple-A rated private-label residential MBS. Securities will be sold via weekly auctions, beginning March 27. In addition, the Federal Open Market Committee has authorized increases in its temporary reciprocal currency arrangements, or swap lines, with the European Central Bank and the Swiss National Bank. The latest actions supplement measures announced March 7 to boost the size of the Fed's Term Auction Facility to $100 billion, among other things. Sen. Christopher J. Dodd, D-Conn., chairman of the Senate Banking Committee, termed the Fed move "a significant step" to address the "liquidity lock-down" in U.S. credit markets, but he called for further steps to address "the foreclosure crisis." He said he is preparing legislation to do so.