17 September 2008

Fed to Treasury: More Power!

The Treasury acts to put more 'top end' on the Fed's printing presses.

Treasury to Sell Bills to Bolster Fed Balance Sheet
By John Brinsley and Rebecca Christie

Sept. 17 (Bloomberg) -- The U.S. Treasury said it will sell bills to allow the Federal Reserve to expand its balance sheet, a day after the government agreed to take over American International Group Inc.

``The Treasury Department announced today the initiation of a temporary Supplementary Financing Program at the request of the Federal Reserve,'' the department said in a statement today. ``The program will consist of a series of Treasury bills, apart from Treasury's current borrowing program.''

Yesterday the Fed announced an $85 billion loan to AIG, in exchange for a 79.9 percent government stake in the largest U.S. insurer. The Fed also has set up several other emergency lending programs to provide Wall Street firms with ready access to funding.

The new bill program ``will provide cash for use in the Federal Reserve initiatives,'' the Treasury said.

The Treasury said it will sell the new bills using its existing auction procedures, giving ``as much advance notification as possible.'' The bills will not have a uniform fixed term, giving the Treasury the same duration flexibility that it has with cash-management bills.

NY Federal Reserve Bank
Statement Regarding Supplementary Financing Program
September 17, 2008

Today, the Treasury Department announced the initiation of a temporary Supplementary Financing Program.

The program will consist of a series of Treasury bill auctions, separate from Treasury's current borrowing program, with the proceeds from these auctions to be maintained in an account at the Federal Reserve Bank of New York.

Funds in this account serve to drain reserves from the banking system, and will therefore offset the reserve impact of recent Federal Reserve lending and liquidity initiatives.