Fed to Offer Banks $60 Billion in January Auctions

The Federal Reserve announced Friday that it is increasing the amount of money available to banks through a new auction process, one of the main ways it is combatting a severe credit squeeze. The Fed again pledged to continue with the auctions "for as long as necessary."

The Federal Reserve headquarters in Washington, DC.
The Federal Reserve headquarters in Washington, DC.

The Fed said that it will increase the amount offered at each of the next two auctions from $20 billion to $30 billion, a 50 percent jump. The next two auctions will take place on Jan. 14 and Jan. 28.

The Fed announcement indicated that the auction process it began last month has been successful in providing a source of loans for cash-strapped banks.

The Fed announced in December that it was creating an auction facility to give cash-strapped banks a new way to get short-term loans from the central bank to help them over the credit hump. A global credit crisis has made banks reluctant to lend to each other, which can crimp lending to individuals and businesses.

The smooth flow of credit is the econony's life blood. It permits people to finance big-ticket purchases, such as homes and cars, and helps businesses to expand their operations and hire workers.

The Fed's actions are part of a global response in which other central banks also are taking steps to curb the credit crisis.

The first Fed auction of $20 billion was jammed by banks, but the second one a week later got a more tepid response.

Nonetheless, the Fed said it will continue the biweekly auctions from its newly created Term Auction Facility "for as long as necessary to address elevated pressures in short-term
funding markets."

The auction was part of a coordinated move by central banks around the world to make money available in credit markets and encourage banks to keep lending.