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Fed to boost auctions, pay interest on reserves
October 6, 2008 / 1:39 PM / 9 years ago

Fed to boost auctions, pay interest on reserves

WASHINGTON (Reuters) - The Federal Reserve on Monday announced a series of steps to funnel massive amounts of liquidity through clogged credit markets, including boosting the sizes of cash auctions and offering banks interest on reserves.

<p>A traffic light is pictured beside the Wall Street road sign in the financial district of New York September 19, 2008. REUTERS/Lucas Jackson</p>

“The Federal Reserve is substantially increasing the size of the Term Auction Facility (TAF) auctions,” the central bank said in a statement.

Specifically, the Fed will boost its 28-day and 84-day TAF auctions to $150 billion each.

The Fed will also begin paying interest on reserves held by the central bank with required reserves receiving a larger payment than excess balances.

Required reserves will be paid interest at a rate of 0.10 percentage point below the federal funds rate. Excess balances held by the Federal Reserve will be paid 0.75 percentage point below the funds rate - although the Fed said that it might yet tinker with that formula.

“Together, these actions should encourage term lending across a range of financial markets in a manner that eases pressures and promotes the ability of firms and households to obtain credit,” the Fed said in a statement.

Reporting by Mark Felsenthal, Editing by Chizu Nomiyama

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