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.
“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