FACTBOX-The Fed's evolving liquidity toolkit

Jan 7 (Reuters) - The U.S. Federal Reserve said on
Wednesday it was expanding and tweaking the parameters of its
money market credit facility to include a wider array of
investors and keep the program viable even with money market
yields at rock-bottom levels.

The Money Market Investor Funding Facility was authorized
in October as a way to keep credit flowing to mutual funds.

The program will now be open to other money market
investors, including certain U.S.-based investment funds,
government investment pools and common trust funds.

The Fed continues to create and fine-tune a number of
programs to support credit availability at a time financial
market functioning remains impaired.

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 Aug. 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
Dec. 16, it set the discount rate at 0.50 percent.

SHORING UP MONEY MARKET MUTUAL FUNDS

The Fed on Sept. 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 Nov. 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
Dec. 30, the Fed said it had selected investment managers
BlackRock Inc, Goldman Sachs Asset Management, PIMCO and
Wellington Management Co to conduct the MBS purchase program,
which started operations in early January.

TERM ASSET-BACKED SECURITIES LOAN FACILITY (TALF)

The Fed on Nov. 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 Oct. 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
began purchases on Oct. 17. The CPFF will cease purchases on
April 30, 2009, unless extended.

MONEY MARKET INVESTOR FUNDING FACILITIES (MMIFF)

The Fed on Oct. 21 announced a measure to help restore
liquidity to money markets by facilitating lending by mutual
funds and investors. The facility, which started operations on
Nov. 24, is authorized to buy $600 billion in certificates of
deposits and commercial paper with remaining maturities of 90
days or less.

On Jan. 7 the Fed expanded eligibility to participate in
the program to include a much broader array of institutions. It
also changed several of the MMIFF's economic parameters,
including the minimum yield on assets eligible to be sold to
the MMIFF. That will keep the program viable even at very low
levels of money market interest rates.

The facility is scheduled to wind down starting on April
30, 2009.

SWAP LINES WITH OTHER CENTRAL BANKS

The Fed has established several currency swap lines with
other central banks so they have U.S. dollars to lend in their
markets. All of the swaps initially had set limits, but on Oct.
13 the Fed lifted the cap on its swaps with the European
Central Bank, Swiss National Bank and Bank of England. On Oct.
14, it erased the upper limit on its line with the Bank of
Japan. The Fed also has authorized swap lines with the central
banks of Canada, Norway, Australia, Sweden and New Zealand.

PRIMARY DEALER CREDIT FACILITY (PDCF):

Traditionally, the Fed has lent only to insured depository
institutions through its discount window. But on March 16, it
launched a new facility for investment banks, marking the first
time since the Great Depression that it had lent to
non-depositories. The program was set to sunset after six
months, but the Fed extended it until Jan. 30, 2009, and then
until April 30, 2009.

TERM SECURITIES LENDING FACILITY (TSLF):

Under the $200 billion TSLF, the New York Fed conducts
weekly auctions of 28-day loans of Treasury securities to
primary dealers. Those auctions will continue until at least
April 30, 2009.

AUCTION OF TERM SECURITIES LENDING FACILITY OPTIONS:

The Fed authorized the New York Fed to auction options for
primary dealers to borrow securities from the TSLF. The Fed
said the options will be for exercise ahead of periods when
market conditions have become stressed, like quarter-ends. The
facility allows up to $50 billion of draws on the TSLF, which
would be in addition to the $200 billion that may be offered
under regular TSLF auctions.

TERM AUCTION FACILITY (TAF) LOANS:

The Fed launched the Term Auction Facility in December 2007
to provide funds over a longer period to a wider range of banks
and has steadily enlarged it. On Oct. 6, the Fed increased TAF
to $150 billion for both 28- and 84-day auctions. The increases
eventually will lift outstanding amounts under the regular TAF
to $600 billion. The Fed also has held two forward TAF auctions
in which it offered $150 billion in each, although the auctions
were undersubscribed.

TERM REPURCHASE AGREEMENTS

The Fed on March 7 announced a series of 28-day repurchase
transactions for primary dealers, expected to add up to $100
billion.

PAYING INTEREST ON RESERVES:

The Fed was authorized as part of the $700 billion bailout
program for financial firms to pay interest on the reserves
banks hold at the central bank, which can help the Fed damp
downward pressure on interest rates when it expands its balance
sheet.

OTHER TRADITIONAL TOOLS:

The Fed also provides liquidity through its traditional
open market operations and securities lending to primary
dealers. The loans of funds or Treasury securities are
typically overnight repurchase agreements against collateral of
Treasuries, agencies, or agency MBS.

SOURCES:

Federal Reserve:
here

New York Fed:
here
(To access other stories on Fed policy, please click on
[FED/AHEAD])
(Compiled by Reuters' Fed reporting team; Editing by Kenneth
Barry)