Liquidity Adjustment Facility

DEFINITION of 'Liquidity Adjustment Facility'

A tool used in monetary policy that allows banks to borrow money through repurchase agreements. This arrangement allows banks to respond to liquidity pressures and is used by governments to assure basic stability in the financial markets.

BREAKING DOWN 'Liquidity Adjustment Facility'

Liquidity adjustment facilities are used to aid banks in resolving any short-term cash shortages during periods of economic instability or from any other form of stress caused by forces beyond their control. Various banks will use eligible securities as collateral through a repo agreement and will use the funds to alleviate their short-term requirements, thus remaining stable.

RELATED TERMS
  1. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities. ...
  2. Reverse Repurchase Agreement

    The purchase of securities with the agreement to sell them at ...
  3. Term Repurchase Agreement

    Under a term repurchase agreement, a bank will agree to buy securities ...
  4. Retail Repurchase Agreement

    An alternative to regular savings deposits. Under a retail repurchase ...
  5. Federal Discount Rate

    The interest rate set by the Federal Reserve that is offered ...
  6. Term Securities Lending Facility ...

    A lending facility through the Federal Reserve that allows primary ...
Related Articles
  1. Investing Basics

    What's a Reverse Repurchase Agreement?

    A reverse repurchase agreement is the buyer side of a repurchase agreement (also called a repo).
  2. Retirement

    Money Market: Repos

    Repo is short for repurchase agreement. Those who deal in government securities use repos as a form of overnight borrowing. A dealer or other holder of government securities (usually T-bills) ...
  3. Personal Finance

    What Are Central Banks?

    They print money, they control inflation, and much, much more. All you need to know about central banks is here.
  4. Options & Futures

    Understanding Financial Liquidity

    Understanding how this measure works in the market can help keep your finances afloat.
  5. Economics

    How Unconventional Monetary Policy Works

    Unconventional monetary policy, such as quantitative easing, can be used to jump-start economic growth and spur demand.
  6. Economics

    The Top 6 Ways Governments Fight Deflation

    Here are six monetary and fiscal policy tools that governments use to fight deflation.
  7. Economics

    What Does a Central Bank Do?

    A central bank oversees a nation’s monetary system.
  8. Credit & Loans

    What's a Revolving Line of Credit?

    A revolving line of credit is an arrangement made between a company or an individual and a bank to borrow money on a short-term basis.
  9. Investing Basics

    Financial Markets: Capital vs. Money Markets

    Financial instruments with high liquidity and short maturities trade in money markets. Long-term assets trade in the capital markets.
  10. Markets

    What Is The Quick Ratio?

    Find out about this liquidity indicator and how it's used.
RELATED FAQS
  1. What is the difference between a repurchase agreement and reverse repurchase agreement?

    Learn how a repurchase agreement is a form of collateralized lending and a reverse repurchase agreement is a form of collateralized ... Read Answer >>
  2. What risks does the dealer (lender) in a reverse repurchase agreement take on?

    Read about the lender risks of participating in reverse repurchase agreements or for dealers who use the Fed's overnight ... Read Answer >>
  3. What is the primary use of reverse repurchase agreements?

    Discover how the Federal Reserve utilizes reverse purchase agreements for the primary purpose of offsetting temporary shifts ... Read Answer >>
  4. What tax implications are there for parties involved with a reverse repurchase agreement?

    Learn about the tax consequences that the buyer can face as a result of a reverse repurchase agreement ("reverse repo") with ... Read Answer >>
  5. Are a bank's current assets counted as liquidity?

    Find out how bank assets are defined and how the Federal Reserve controls the definitions of, requirements for, and availability ... Read Answer >>
  6. What is the difference between a bank's liquidity and its liquid assets?

    Understand the relationship between a bank's liquid assets and its liquidity and how the financial crisis demonstrated the ... Read Answer >>
Hot Definitions
  1. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  2. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  3. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  4. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  5. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  6. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
Trading Center