The Federal Reserve on Monday announced a series of steps to bolster liquidity in the credit and commercial paper markets, amid mounting pressure for more action following passage of the $700bn financial bailout last week. The Fed said it would increase the size of its key TAF lending facility to commercial banks, pay interest on excess reserves to smooth liquidity operations, and allow money market funds to borrow via banks to fund their holdings of commercial paper. The Fed added that it and the Treasury department were “consulting with market participants” on ways to provide additional support for term unsecured funding markets and said it stood ready to take additional measures “as necessary” to foster liquid money market conditions. Expectations of another intervention to shore up the credit markets highlight the extent to which the bailout plan was not seen as the government’s complete answer to the financial turmoil. The Treasury could this week set guidelines for the selection of a handful of private asset managers to run the programme. Reuters reports that large US asset managers such as Blackrock and Pimco are seen as favourites to oversee the $700bn fund. The core of the plan – a reverse-auction mechanism for acquiring troubled assets from a range of financial institutions – will not function until next month at the earliest. Full text of Fed statement here.

This entry was posted by Gwen Robinson on Tuesday, October 7th, 2008 at 5:43 and is filed under Capital markets. Tagged with federal reserve. Edit this entry.