Monday, November 26, 2007

New York Fed Adds Extra Liquidity

The New York Federal Reserve announced Monday it was implementing several measures to increase liquidity in the parched credit markets ahead of the year's end.

The New York Fed's moves included increasing the amount of funds that dealers can tap through the bank's open market account securities lending program and making an unusual long agreement to buy back securities to cover the year end.

The changes will allow dealers to tap the New York Fed's System Open Market Account program to borrow up to $750 million per issue — up from a prior cap of $500 million per issue. The New York Fed carries out monetary policy for the U.S. Federal Reserve.

The changes also will let dealers utilize the Fed program for funds to buy securities with maturities of more than six days. Previously, the progam could be used only on assets maturing in more than 13 days.

In addition, The New York Fed on its Web site said it would make special repurchase agreement, or "repo," loans extending until the end of year. Under a Fed repo, the bank adds reserves to the banking system, then withdrawns the funds after a specified period.

On Wednesday the bank said on its website it will loan about $8 billion maturing on Jan. 10. The six-week loan is longer than usual. Typically the Fed adds liquidity to the system with 2-week repurchase agreements.

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