The Federal Reserve Bank of New York today released The Federal Reserve’s Term Auction Facility, the latest article in its series Current Issues in Economics and Finance.
Authors Olivier Armantier, Sandra Krieger and James McAndrews provide an overview of the Term Auction Facility (TAF), a tool introduced by the Federal Reserve in December 2007 in response to increasingly strained liquidity conditions in the term funding markets.
The authors discuss the market conditions leading up to the facility’s introduction, other funding steps taken by the Federal Reserve, the central bank’s objectives in establishing the TAF, and the structure and operation of the facility. They also describe the results of the first ten TAF auctions conducted through April 2008.
The authors conclude that in times of disruption in the short-term money markets, the TAF may offer institutions greater assurance of their ability to borrow term funds, which can reduce the constraints on their allocation of credit.
Olivier Armantier is a senior economist, Sandra Krieger an executive vice president and James McAndrews a senior vice president at the Federal Reserve Bank of New York.