With over two months left before it was set to expire, the Federal Reserve said yesterday that its facility for lending to investment banks would be extended through the end of January.
The move was not a total surprise as last week New York Federal Reserve Bank President Timothy Geithner told Congress that the liquidity backstop provided by the Primary Dealer Credit Facility was supporting confidence. The Fed also extended through January the Term Securities Lending Facility, which allows primary dealers to trade less liquid debt for U.S. securities.
The moves shouldn't be seen as signs that these facilities will stick around forever though, the bank warned:
These facilities would be withdrawn should the Board determine that conditions in financial markets are no longer unusual and exigent.
The Fed also added a new liquidity measure, introducing 84-day Term Auction Facility loans, which will complement the existing 24-day loans. The latter, first introduced in December, have helped reduce liquidity concerns in money markets, recent studies have shown.
Adding the 84-day loans should assist in an area where tightness is still a concern Sean Maloney of Nomura told Reuters:
It doesn't look to be a huge amount in terms of new liquidity coming...it just seems to be an improvement in the flexibility of these operations to target where some of the real funding pressures lie which is more in the 3-month area of the money market curve than it is in the one-month at the moment.
Although stock markets were up yesterday, seemingly liking the Fed's move (as well as a jobs report hinting that employees added to payrolls this month), with nearly a year since the credit crisis fully hit, it's not a great sign that the Fed has to add another lifeline. At the same time, it's better than doing nothing.