Federal Reserve Will Hold Money Auctions for Banks
Wednesday, the Federal Reserve Bank announced a new approach to help increase liquidity in the U.S. financial system. Through a temporary “term auction facility” (TAF), banks can borrow from the Federal Reserve for a one-month term at a below-discount rate, set by market auction.
How Does the TAF Work?
Starting this week, through the TAF, the Fed will make $20 billion available for banks to borrow at auction, and banks will essentially bid against one another to borrow the funds. Banks submit a bid with the amount they want to borrow and what interest rate they will pay; the bid at the highest interest rate will win. A minimum bid will be established at the projected fed funds rate over the month term period, which is lower than the discount rate. To borrow, banks must provide collateral equal to the loan value. The Fed plans to hold two of these unprecedented auctions in December and two more in January.
What is the Fed’s Goal in Offering the TAF?
Concerned about the potential of exposing themselves to bad, subprime mortgage debt, banks are reluctant to lend to one another. The Fed has dropped its discount rate (the rate it charges banks to borrow funds) and extended terms from overnight to 30 days. Yet some banks are still averse to borrowing through the discount window, worried that doing so will send out negative signals about their liquidity and financial stability. With the TAF, the Fed is hoping banks will not feel the same stigma, since the interest rate is set by the market when banks bid against one another for the funds.
What Does That Mean for New Home Buyers and Borrowers?
If the TAF encourages banks to borrow, more liquidity in the pipeline could help to bring down bank lending rates, including mortgage interest rates. The overall goal for the TAF is to increase the flow of money in the banking system and reduce the cost of borrowing. If banks lend, rather than sit on their coffers it would: 1) make more money available to consumers; 2) provide more support to the housing and mortgage industries; and 3) encourage business investment - all points that could help to avert recession.
The TAF is just one more Fed action aimed at helping to keep our economy growing. With more money available in the banking system, consumers looking to buy new homes may find more affordable home loans and mortgage interest rates.
Check out how the Government Stimulus Plan Will Boost High-End Real Estate Markets
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The Author: Sandra Tuell
Website: http://www.newhomes.com
About: As an accredited real estate enhancement professional, interior arranger and color specialist, Sandra Tuell's expertise is in helping clients transition to a new home — first by preparing their current homes for resale, and then by creating warm and inviting spaces in their new homes that are uniquely personal. With a passion about all that is pertinent to the design, comfort, livability, and ultimately the marketability of a home, Sandra is excited to share her insights with homeowners who wish to maximize the potential of their homes.
As a writer for New Homes Realty, Inc., her focus is to provide practical information and affordable tips that both inspire readers and instill the confidence to try something new. “Our personal spaces can have a profound effect on how we feel,” stresses Sandra. “Everyone deserves good design. Creating beautiful interiors has more to do with creativity than money. The whole point is to create a space that makes you feel good...that you feel like coming home to.”
For the past four years, Sandra has operated her own interior arrangement and home staging company, Roomscapes, servicing clients in Pinellas County, Florida. She received specialized training in interior arrangement, and earned certification in real estate enhancement through Realty Enhancements International. Previously, Sandra worked in the corporate world as a marketing professional, applying her creative energy in a variety of roles including advertising, promotions, special events planning and web content creation. Her current position as a writer for New Homes Realty allows her to bring together her love of design and her educational training as a journalist. “It's really the best of both worlds,” says Sandra.
This entry was posted by Sandra Tuell, on Tuesday, December 18th, 2007 at 12:08 pm and is filed under Real Estate News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
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