Term Auction Facility - TAF

Definition of 'Term Auction Facility - TAF'


A monetary policy program used by the Federal Reserve to help increase liquidity in the U.S. credit markets. TAF allows the Federal Reserve to auction set amounts of collateral-backed short-term loans to depository institutions that are judged to be in sound financial condition by their local reserve banks. Participants bid through the reserve banks, with a minimum bid set at an overnight indexed swap rate relating to the maturity of the loans. These auctions allow financial institutions to borrow funds at a rate that is below the discount rate.

Investopedia explains 'Term Auction Facility - TAF'


The TAF was first used by the Fed on December 17, 2007, in response to the 2007 subprime crisis, which caused liquidity problems in the market. After the Fed's attempt to spur liquidity by decreasing its discount rate failed to achieve the desired result, the Fed teamed up with other central banks around the world to create this monetary policy instrument in an attempt to prevent the situation from growing worse.



comments powered by Disqus
Hot Definitions
  1. Federal Reserve Note

    The most accurate term used to describe the paper currency (dollar bills) circulated in the United States. These Federal Reserve Notes are printed by the U.S. Treasury at the instruction of the Federal Reserve member banks, who also act as the clearinghouse for local banks that need to increase or reduce their supply of cash on hand.
  2. Benchmark Bond

    A bond that provides a standard against which the performance of other bonds can be measured. Government bonds are almost always used as benchmark bonds. Also referred to as "benchmark issue" or "bellwether issue".
  3. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determine a company's size, as opposed to sales or total asset figures.
  4. Oil Reserves

    An estimate of the amount of crude oil located in a particular economic region. Oil reserves must have the potential of being extracted under current technological constraints. For example, if oil pools are located at unattainable depths, they would not be considered part of the nation's reserves.
  5. Joint Venture - JV

    A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it.
  6. Aggregate Risk

    The exposure of a bank, financial institution, or any type of major investor to foreign exchange contracts - both spot and forward - from a single counterparty or client. Aggregate risk in forex may also be defined as the total exposure of an entity to changes or fluctuations in currency rates.
Trading Center