This Wednesday, the U.S. Federal Reserve, the Bank of Canada, the Bank of England, the European Central Bank, and the Swiss National Bank announced several measures intended to address pressures in short-term lending markets. Under the new 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. 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, Central Banks hope to promote the efficient dissemination of liquidity when the unsecured interbank markets are under stress.
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