FACTBOX: The Fed's evolving liquidity toolkit

CHICAGO (Reuters) - The Federal Reserve on Tuesday said its previously-announced program to buy some $500 billion in mortgage-backed securities would be up and running in early January.

The Fed said it had selected investment managers BlackRock Inc, Goldman Sachs Asset Management, PIMCO and Wellington Management Co to run the program, details of which were first announced on November 25.

The firms will buy MBS from the agencies Fannie Mae, Freddie Mac and Ginnie Mae, as part of the government's effort to break the grip of a deep housing downturn and severe credit crunch.

The following is a look at the Fed's evolving liquidity toolkit:

DISCOUNT WINDOW:

The discount window is the Fed's traditional way of providing liquidity to the depository institutions that it regulates. The Fed's first liquidity salvo was on August 17, 2007, when it unexpectedly lowered the discount rate by a half percentage point, narrowing the spread above the benchmark federal funds rate -- the rate banks charge each other for loans -- to a half percentage point. It narrowed the spread to just a quarter point on March 16 of this year. The Fed accepts a broad range of collateral for loans at the discount window. When the Fed set a fed funds range of zero to 0.25 percent on December 16, it set the discount rate at 0.50 percent.

SHORING UP MONEY MARKET MUTUAL FUNDS:

The Fed on September 19 said it would make discount window loans to financial institutions to allow them to buy asset-backed commercial paper from money market mutual funds. The program is intended to assist money funds that hold such paper in meeting demands for redemptions by investors and to foster liquidity in the asset-backed commercial paper market and money markets. The program was initially set to run through January, but has been extended to April 30, 2009.

MORTGAGE-BACKED SECURITIES PURCHASE PROGRAM:

With the goal of boosting credit available for the purchase of houses, the Fed on November 25 announced a program to buy $100 billion in the direct obligations of housing related government sponsored enterprises (GSEs) -- Fannie Mae, Freddie Mac and the Federal Home Loan banks -- and $500 billion in mortgage-based securities backed by Fannie Mae, Freddie Mac and Ginnie Mae. On December 30, the Fed said it had selected investment managers BlackRock Inc, Goldman Sachs Asset Management, PIMCO and Wellington Management Co conduct the MBS purchase program, which will start operations in early January.

TERM ASSET-BACKED SECURITIES LOAN FACILITY (TALF):

The Fed on November 25 announced a funding facility to help market participants meet the credit needs of households and small businesses. The New York Fed will lend up to $200 billion on a non-recourse basis to holders of some AAA-rated asset-backed securities (ABS) collateralized by student loans, credit card loans and the like. The Treasury will pitch in $20 billion to help underwrite those investments.

COMMERCIAL PAPER FUNDING FACILITY (CPFF):

The Fed on October 7 said it would fund purchases of highly rated, U.S.-dollar denominated, three-month commercial paper. Purchases will be made through a special purpose vehicle that would begin purchases on October 17. The CPFF will cease purchases on April 30, 2009, unless extended.

MONEY MARKET INVESTOR FUNDING FACILITIES (MMIFF):

The Fed on October 21 announced a measure to help restore liquidity to money markets by facilitating lending by mutual funds and investors. The facility will be authorized to buy $600 billion in certificates of deposits and commercial paper with remaining maturities of 90 days or less. The facility is scheduled to wind down starting on April 30, 2009.