(AFP) – Nov 26, 2007
WASHINGTON (AFP) — The Federal Reserve Bank of New York said Monday it was moving to ensure stressed US financial markets would have adequate liquidity over the looming Christmas holiday and the new year.
The New York Fed, acting on behalf of the Washington-based Federal Reserve central bank, said it would conduct a series of so-called "repurchase agreements" over the holidays to ensure market liquidity.
The Federal Reserve bank said it was acting "in response to heightened pressures in money markets for funding through the year-end."
Major banks and financial institutions will be wrapping up their year-end operations in coming weeks ahead of releasing their fourth-quarter earnings statements.
Analysts expect many banks to reveal further investment losses tied to the US housing slump and rising mortgage delinquencies.
"Given the high-level of attention focused on the coming year-end, we hope to reassure market participants of our commitment to provide sufficient balances at the year-end by starting to provide those balances now," a spokesman for the New York Fed said.
The Fed has injected hundreds of billions of dollars into the banking system since early August when credit flows started seizing up as banks began reporting multibillion dollar losses and writedowns tied to the housing market's woes.
The Fed plans to inject a further eight billion dollars into the banking system on November 28 in a repurchase agreement which is due to mature on January 10, 2008.
The US central bank typically buys billions of dollars worth of securities from major banks, pumping extra cash into the banking system, which the banks are obliged to repurchase at a later date.
It regularly conducts such repurchases, but the pace of repurchasing has increased since August as the banking system has been stretched by mortgage-related losses.
The New York Fed said it would also provide "sufficient reserves to resist upward pressures on the federal funds rate above the FOMC's target rate around year-end."
The Federal Open Market Committee (FOMC) voted on October 31 to trim the Fed's key short-term interest rate by a quarter of a percentage point to 4.50 percent, following a more aggressive cut of half a percentage point in late September.
The FOMC is due to meet on December 11 for its last scheduled meeting on interest rates this year. Economists are divided on whether the Fed will keep rates on hold or reduce them further.
The Fed said it was also temporarily adjusting its repurchasing rules so banks could access more funds and use a wider range of securities in the operations.
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