U.S. dealers eager for new Fed funding insurance
NEW YORK (Reuters) - Wall Street dealers, fearful of getting caught short of cash at the end of the quarter, were eager buyers of a type of insurance policy offered for the first time on Wednesday by the Federal Reserve.
The firms submitted $51 billion in bids for this insurance at an auction, twice the amount offered, said the New York Fed, which conducted the auction.
Successful bidders have the option to borrow for seven days $25 billion of Treasuries from its Term Securities Lending Facility program for a fee of 0.02 percent, according to the New York Fed.
The Fed created the Term Securities Lending Facility Lending Options Program (TOP) to provide additional liquidity for primary dealers at times when there is typically more demand for funds, such as quarter-end dates. Primary dealers are Wall Street firms that do business directly with the Fed.
The Fed has designed various measures to ensure money flows within the financial system, which is still being squeezed by a credit crunch that has lasted more than a year.
The solid showing at the debut TOP auction was reflected in a bid-to-cover ratio of 2.04. It also surpassed the bidding at recent TSLF auctions which dealers can exchange assets with the Fed for 28 days.
Meanwhile, Wednesday's TOP auction will be followed by another also worth $25 billion on Sept. 10.
Bidders at both auctions can exercise their options on Sept. 24. They can exchange "Schedule 2" securities for Treasury issues offered by the Fed at a fixed loan rate of 0.25 percent.
"Schedule 2" securities that the Fed accepts include triple-A-rated private-label residential mortgage-backed securities, commercial mortgage-backed securities and some top-rated asset-backed securities.
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(Reporting by Richard Leong; Editing by James Dalgleish)
