FACTBOX: The Fed's evolving liquidity toolkit

(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 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 to conduct the MBS purchase program, which started 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 began 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, which started operations on November 24, is authorized to buy $600 billion in certificates of deposits and commercial paper with remaining maturities of 90 days or less.

On January 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 October 13 the Fed lifted the cap on its swaps with the European Central Bank, Swiss National Bank and Bank of England. On October 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 January 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 October 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

(Compiled by Reuters' Fed reporting team; Editing by Kenneth Barry)