Bernanke Opens Door to Extending Primary Dealer Credit Facility

donsutherland1 · 07-08-08, 09:03 AM

In his address this morning before the Federal Deposit Insurance Corporation's Forum on Mortgage Lending for Low and Moderate Income Households, Federal Reserve Chairman Ben Bernanke opened the door to the Fed's extending the temporary Primary Dealer Credit Facility (PDCF) beyond mid-September when it is slated to expire. The PDCF was created on March 16, 2008 in the wake of the run on Bear Stearns.

He stated:

The PDCF and the TSLF were created under the Federal Reserve's emergency lending powers, with the term of the PDCF set for a period of at least six months, through mid-September. The Federal Reserve is strongly committed to supporting the stability and improved functioning of the financial system. We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end, should the current unusual and exigent circumstances continue to prevail in dealer funding markets.

donsutherland1 · 07-30-08, 09:22 AM

Today, the Federal Reserve extended the PDCF and TSLF through January 30, 2009. The Federal Reserve's statement explained:

In light of continued fragile circumstances in financial markets, the Board has extended the PDCF through January 30, 2009, and the Board and the Federal Open Market Committee (FOMC) have extended the TSLF through that same date. These facilities would be withdrawn should the Board determine that conditions in financial markets are no longer unusual and exigent.

The PDCF provides discount window loans to primary dealers, collateralized by investment-grade securities. The interest rate charged is the primary credit rate (discount rate) of the Federal Reserve Bank of New York. Under the TSLF, the Federal Reserve Bank of New York conducts weekly auctions of 28-day loans of Treasury securities to primary dealers. Loans under the TSLF are collateralized by a range of government and private securities.