US Federal Reserve to introduce new liquidity measures in US - report

forbes
12.12.07, 5:41 AM ET

LONDON (Thomson Financial) - The US Federal Reserve is planning to introduce new measures to improve liquidity in the strained US banking sector, the Financial Times reported.

The Fed would initiate auction loans for banks, allowing it to provide liquidity directly to a large number of financial institutions against a wide range of collateral without the stigma of its existing discount window loans.

The announcement of the new liquidity measures could come as early as today, the paper reported.

The aim is to improve interbank lending rates and prop up market confidence after stock markets fell on a smaller-than-expected rate cut yesterday.

The central bank cut its Fed funds rate by 25 basis points, disappointing some market participants who were hoping for a 50 point cut. Furthermore, the discount rate -- at which banks borrow from the Fed -- was also cut by only 25 points against firm expectations that it would be reduced by 50.