The US Federal Reserve announced moves Tuesday to pump more liquidity into the global financial system, easing terms for direct loans to banks and increasing swap arrangements with other central banks.
The Fed said it was pumping 200 billion dollars into a new Term Securities Lending Facility, with term of 28 days instead of overnight under an existing program.
This allows banks to obtain Treasury securities by pledging collateral such as mortgage-backed securities and other debt. Auctions will be held on a weekly basis, beginning on March 27.
The Fed also said it has authorized increases in its existing temporary reciprocal currency arrangements or swap lines with the European Central Bank and the Swiss National Bank. The Fed will provide up to 30 billion dollars to the ECN and six billion to the SNB.
The move was coordination with the ECB and SNB along with the Bank of Canada and Bank of England. Each of the central banks "are announcing specific measures" to deal with the liquidity crunch in the global system, according to a Fed statement.
It was the latest in a series of steps to help get credit flowing in the global financial system, which has been gridlocked by concerns about market turmoil.
The new lending auction "is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally," the Fed said in a statement.
"As is the case with the current securities lending program, securities will be made available through an auction process."
The Fed action is designed to get more funds to banks hit by credit crunch and thus cautious about interbank loans. By coordinating with other global central banks, the move will help provide dollars to overseas banks.
The latest action expanded an initiative announced by the Fed in December to create a Term Auction Facility that allows commercial banks to bid for loans without the stigma of using the Fed's discount rate.
