Standing Facilities-What is the Standing Facilities?
Recurrent financing facilities (Standing Facilities) for the market participants directly or by absorption of funds, transfer of monetary policy, as well as control the overnight market interest rates as a tool for the central bank restrictions on the inter-bank interest rate volatility as a direct means.
Under normal circumstances, eligible margin loans by financial institutions to facilitate the (marginal lending facility) eligible assets as collateral to obtain overnight from the central bank liquidity. Margin loans to facilitate the overnight market interest rates usually provide an interest rate cap. Financial institutions can also deposit facility (deposit facility) will be deposited in the central bank a day extra positions. Deposit facility interest rate is usually the overnight market interest rates and an interest rate floor.
Central banks in many countries to facilitate the use of regular financing institutions to market participants and absorption of liquidity, such as the U.S. Federal Reserve, European Central Bank, Bank of England, Bank of Canada, Australia, the central bank and so on. However, the recurrent financing of central banks to facilitate the operation of the specific situation is different.
Recurrent financing facilities - the Fed's regular financing facilitiesIn the past many years, the Fed did not provide regular financing facilities, but through the Discount Window (discount window) to below-market rates to bank loans. As banks through the discount credit will continue to decline, the Fed's discount window policy has been substantially revised from the January 9, 2003 started to provide regular financing facilities.
Discount Window of depository institutions and primary dealers of the PDCF is effective in recurrent funding to facilitate the daily financing for qualified institutions. Through these initiatives to facilitate access to funds in the lending institutions, the amount of funding depends on the needs of lending institutions as well as the collateral assets. Facilitating the identification of the Federal Reserve for such an above-market interest rates, fixed interest rate, in order to prevent unnecessary institutions to the Federal Reserve borrowing.
TAF against the depositary institution and a dealer TSLF constitute a second type of convenience. In such facilities, the financing of long duration and quantity has been pre-determined, in the published date of the auction, in some time after the settlement of accounts. These facilities are on a deadline in order to improve the overall liquidity environment, maintain financial market stability, rather than to meet the daily needs of individual institutions. In this type of convenience, interest rates, as well as the allocation of funds between institutions through the auction to decide.
Recurrent funding to facilitate the main content (A) to facilitate the financing of the deposit-taking institutions Discount Window credit programs and the TAF is a deposit-taking institution for the financing of facilities. To facilitate the adoption of these two loans, you can use a variety of asset-backed collateral, including commercial and home loans.
1, a credit discount window program Discount Window to facilitate the progress of each business day is, it is deposit-taking institutions in order to meet daily or unexpected financing needs. For example, if a deposit-taking institutions received unexpected delivery of the securities, or its financial management systems that are experiencing operational obstacles, it may face the risk of overnight overdrafts. In order to avoid overdrafts, banks can discount a loan program to borrow money.
2, on a regular basis to facilitate the auction TAF is December 12, 2007 launch, and provide regular financing. To achieve a credit program eligibility requirements of the depository institutions also may use TAF, while the discount window collateral assets can be accepted as a TAF collateral assets. Compared with the discount window, each TAF auction of funds is the total pre-determined and published by the Federal Reserve's interest rate competition among depository institutions through the process established institution of the highest bid rate will be funding. Different from the date of settlement with the discount window, TAF is the delay in the delivery of funds, and therefore can not meet the individual depository institutions, the immediate needs for funds. TAF funding settlement date is also pre-announced. (Ii) to facilitate the financing of a dealer Federal Reserve Bank's open market operations trading in the auction with a sale of securities dealers, or the Federal Reserve Bank to sell securities, and then buy back the securities in accordance with an agreement through which the buy-back to a dealer loan financing. Began in March 2008, repurchase market pressures continue to increase, a substantial decline in the amount of repurchase financing, accordingly, the cost is increasing. To address this tension, the Federal Reserve released the following two financing facilities. 1, a dealer credit facility (PDCF) PDCF in March 16, 2008 launch. Federal Reserve believes that the financial markets there is abnormal and emergency situations (including the severe lack of liquidity), which makes the functioning of many markets has been weakened to the threat of introduction of PDCF. A dealer to use PDCF, and their participation in open market operations is different, mainly reflected in two aspects. First, PDCF allows the scope of secured assets than the open market operations should be wide; second, PDCF interest rate is fixed, rather than through the auction mechanism determined. PDCF provided to depository institutions in a credit program similar to the discount window. Like with the discount window, lending the amount of money depends on the individual needs of a dealer, interest rate and deposit institutions through the discount window borrowing interest rates the same, and the PDCF is also on a daily basis. PDCF by ensuring that dealers have access to capital, to improve market liquidity and encourage a dealer market making, and the provision of credit to customers.
3, on a regular basis to facilitate securities lending (TSLF) TSLF on March 11, 2008 launch, is a dealer for a fixed term loan facilities. TSLF allows traders to the lack of liquidity of the securities as collateral to bid for the exchange of highly liquid treasury securities. This is intended to increase financial market in China to facilitate the securities and other mortgage-backed securities bank liquidity, so that the function of financial markets become more mature. With the other Federal Reserve liquidity to facilitate the comparison, TSLF more neutral, because it is based on mortgage-backed securities as collateral lending Treasury securities. In other words, do not need to open market operations to compensate for borrowing under the TSLF.
Response to the sub-prime crisis, the three new facilities Began in August 2007, the sub-prime crisis, the Fed made a series of changes to its credit facilities, to improve market liquidity and the market functions. The facilities so that those in the financial markets institutions play an important role in the Fed can get liquidity. New Federal Reserve liquidity changes in the supply of a credit discount window program (The Primary Credit Program) of the conditions were amended and the introduction of three new facilities: on a regular basis to facilitate the auction (Term Auction Facility, referred to as TAF), on a regular basis to facilitate securities lending (Term Securities Lending Facility, referred to as TSLF), a dealer credit facilities (Primary Dealer Credit Facility, referred to as PDCF). Federal Reserve to facilitate their mobility changes include: extending the effective period of access to liquidity; relaxed the types of eligible collateral assets; broadens the number of transactions, the scope of qualified dealers; relative to the federal funds rate reduces the cost of borrowing from the Fed .
