October 30, 2009 / 7:32 PM / 10 years ago

Fed lets emergency liquidity measure expire

WASHINGTON (Reuters) - The U.S. Federal Reserve on Friday let expire an emergency provision that had permitted banks to provide liquidity to affiliates unable to obtain funding during the crisis, citing normalizing credit markets.

The Fed said it was letting lapse a temporary exemption to rules that prevented banks from being a source of funding to affiliates, such as securities firms.

“Since the approval of the extension in January, the functioning of the tri-party repo market has improved considerably,” the Fed said in a statement.

In letting the facility sunset, the Fed is taking a small step toward withdrawing its extensive emergency support for U.S. financial markets.

The Fed initially offered this particular prop during one of the darkest hours of the financial crisis, in mid-September 2008, and extended it in January.

Reporting by Mark Felsenthal; Editing by Andrea Ricci and Dan Grebler

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