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The Federal Reserve announced changes to its emergency lending window for financial institutions today. The changes extend the repayment period for the loans and the duration of the program among others. The lending window allows banks to borrow from the Fed for short periods of time while putting up securities (such as mortgage backed securities, etc.) as collateral for the loan. Banks have used this lending window to alleviate the strain on capital exacerbated by the credit crunch.
From Market Watch:
The Federal Reserve, continuing to combat the enormous stresses that have engulfed financial markets, announced Wednesday several steps designed to enhance its emergency lending program for banks and primary dealers.
For banks, the Fed said it would lengthen some of the credit it extends to 84 days. At the moment, the loans have been for 28 days.For broker dealers that serve as primary dealers of Treasury debt, the Fed said it would introduce auctions of options on $50 billion of loans. The options could be exercised if needed in periods of elevated stress in months to come, such as the end of financial quarters.The Fed also said it’s officially extending its primary-dealer loan program to the end of January from mid-September. This step had been previously telegraphed by Fed Chairman Ben Bernanke.
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