The Federal Reserve will double its auctions of cash to banks to as much as $900 billion and is considering further steps to unfreeze short-term lending markets as the credit crunch deepens.
"The Federal Reserve stands ready to take additional measures as necessary to foster liquid money-market conditions,'' the central bank said in a statement released in Washington today. Fed and Treasury officials are "consulting with market participants on ways to provide additional support for term unsecured funding markets,'' the statement said.
As part of today's steps, the Fed will increase its auctions under the 28-day and 84-day Term Auction Facility operations to $150 billion each. The two forward TAF auctions in November will be increased to $150 billion each, the Fed said.
The central bank will also begin paying interest on bank reserves. Payments on required reserves will be made at the average targeted federal funds rate established by the Federal Open Market Committee over each reserve maintenance period less 10 basis points.
The Fed gained the authority to pay interest on reserves under the $700 billion financial-rescue legislation approved last week.
In a separate statement, the U.S. Treasury said it is considering changes to its debt issuance, including a reintroduction of three-year notes. Any changes will be released at the department's quarterly refunding announcement Nov. 5.
The Treasury also said today that some cash-management bills may be "longer-dated.'' The expansion in debt sales is needed to "allow Treasury to adequately respond to the near-term increase in borrowing requirements,'' the department said in the statement released in Washington.
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