WASHINGTON The Federal Reserve announced Wednesday that it will auction an additional $25 billion in super-safe Treasury securities to big investment firms, part of an ongoing effort to provide relief to stressed credit markets.
The auction the fourth of its kind will be held on Thursday.
In exchange for the 28-day loan of Treasury securities, bidding firms can put up more risky investments, including certain shunned mortgage-backed securities, as collateral.
In the three auctions held so far, the Fed has provided $133.95 billion worth of Treasury securities to financial firms.
At last week's auction, the Fed had bids for $33.95 billion worth of the securities less than the $50 billion in securities that the Fed was making available. Some analysts read that as a hopeful sign that credit turmoil in this part of the market was easing a bit.
The auction program is intended to help financial institutions and the troubled mortgage market. The Fed said it would make as much as $200 billion worth of Treasuries available through weekly auctions.
The goal is to make investment houses more inclined to lend to each other. It also is aimed at providing relief to the distressed market for mortgage-linked securities. Questions about their value and dumping of these securities have driven up mortgage rates, aggravating the housing slump.
The lending program is one of many unconventional steps the Fed has taken recently to help squeezed financial companies overcome any credit crunches and prevent a meltdown of the entire financial system, which would have dire implications for the overall economy.
In the broadest use of its lending authority since the 1930s, the Fed agreed to temporarily let investment firms obtain emergency financing from the Fed, a privilege that previously had been granted only to commercial banks.