tag:blogger.com,1999:blog-3782644139927778760.post-79808059064920049262007-12-13T10:56:00.000-05:002007-12-13T10:56:00.000-05:002007-12-13T10:56:00.000-05:00Vlade - they're not doing unsecured loans. As Yves says in the post:<BR/><BR/>" Under the Term Auction Facility (TAF) program, the Federal Reserve will auction term funds to depository institutions against the wide variety of collateral that can be used to secure loans at the discount window.<BR/><BR/>So this is basically a discount window under another name, with a different price setting mechanism. The Fed plans at least two more auctions in January, and will seek comments. So this is an experiment that may become a permanent feature, or may be tweaked further "<BR/><BR/>The acceptable forms of collateral will be the same as for the discount window (which in fact are remarkably expansive).<BR/><BR/>This is a key point in terms of why either facility should not be considered as a credit 'bail-out'.<BR/><BR/>This term facility really allows banks to meet their reserve requirements in a planning mode rather than an emergency response mode over year end.<BR/><BR/>Other than that, it won't accomplish broader pricing normalization in libor and CP spreads in my view because the Fed is underestimating the full extent that those spreads are having on monetary tightening over and above the funds rate.Anonymousnoreply@blogger.com