Fed scales back 2 emergency lending programs

By JEANNINE AVERSA (AP)

WASHINGTON — The Federal Reserve on Thursday said it is further scaling back two emergency lending programs as the economy improves.

The Fed will reduce the amount of money available to banks in short-term loans under a program called the Term Auction Facility, or TAF.

For 84-day loans, the Fed will provide a total of $50 billion in loans in October, and $25 billion each in November and December. By early next year, these loans will be shortened to 28 days.

For 28-day loans that also are currently offered, the Fed will continue to make $75 billion available monthly through January.

The Fed also said it will assess whether the TAF should be made a permanent fixture and is seeking public comment on that notion. The program was set up to give banks a ready source of short-term cash beyond the Fed's emergency lending facility — known as the discount window_ where firms can draw low-cost overnight loans.

Across the Atlantic, the European Central Bank said that given limited demand and improved financial conditions, it will stop offering 84-day loans following an operation on Oct. 6.

The Fed also is cutting back on a program where investment firms can temporarily swap risky securities for super-safe Treasury securities.

The Fed says $50 billion worth of Treasury securities will be made available for October, down from the current $75 billion. Operations in November and December will be trimmed to $25 billion each.

The actions respond to "continued improvements in financial market conditions," the Fed said. It builds on earlier steps, announced in late June, to pare down the two programs.

With the economy moving from recession into recovery, the Fed is pulling back on some of the extraordinary support it has provided to banks and other companies to cope with the worst financial crisis since the 1930s.

Fed Chairman Ben Bernanke and his colleagues on Wednesday said they will slow the pace of $1.45 trillion program intended to force down mortgage rates and shore up the housing market. And in August, the Fed signaled that it would wind down a $300 billion government debt-buying program aimed at lowering rates on all kinds of consumer debt.

The Fed's support has caused its balance sheet to jump to just over $2 trillion, more than double the level before the crisis struck.

Weaning companies and the economy off the support will be a high-wire act for the central bank. Fed policymakers need to leave the special programs intact long enough to support the recovery — but not so long as to fuel inflation later. Link...