FACTBOX: As liquidity measures fail, Fed may cast net wider

WASHINGTON (Reuters) - The Federal Reserve on Friday approved a rare arrangement to extend credit to investment bank Bear Stearns through JPMorgan Chase (JPM.N), the latest of a series of extraordinary moves to provide liquidity to markets gripped by a credit crisis.

As central bank liquidity measures struggle to halt the credit squeeze, the Federal Reserve may need to find alternative measures to stop the financial crisis from worsening.

While the Fed has a balance sheet of more than $800 billion, it has already committed more than half of that amount to providing liquidity, not including an undetermined amount it will extend for Bear Stearns.

The Federal Reserve is expected to cut its benchmark interest rate at its meeting on Tuesday, and markets expect at least a three-quarter percentage cut to 2.25 percent.

But Fed officials acknowledge the effectiveness of monetary policy easing, which has taken benchmark borrowing costs down from 5.25 percent in September, has been undermined by paralyzed financial markets.

Following are some details on the Fed's balance sheet, steps it has taken to foster liquidity and further steps it could take:

*The central bank's balance sheet lists assets of $869 billion, of which $709 billion are Treasury securities held outright. The Fed holds $59 billion in securities in repurchase agreements and has extended $60 billion in Term Auction Facility credit. It has announced it will increase monthly TAF auction amounts to $100 billion.

*The Fed now lends directly to depository institutions through its discount window and its Term Auction Facility, which accepts collateral including agency debt, foreign government bonds, municipal bonds, and asset-backed securities as long as the securities meets regulatory quality standards.

*The Fed has expanded its offerings to extend liquidity to primary dealers by initiating a series of repurchase agreements, which will accept similar collateral to the discount window, and the Term Security Lending Facility, which will accept agency mortgage-backed securities and eventually private-label MBS.

*The Fed could buy the debt and mortgage-backed securities guaranteed by government-sponsored mortgage finance enterprises like Fannie Mae or Freddie Mac.

*In a speech about Japan's economic dilemmas in May 2003, Fed Chairman Ben Bernanke, then a Fed governor, suggested that the government might be willing, at the request of the central bank, to exchange government debt for asset-backed commercial paper of the same maturity. "The net effect would be that the fiscal authority would assume the credit risk flowing from the nonstandard monetary policy action," he said.

(Reporting by Mark Felsenthal)