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.

BREAKING DOWN '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.

RELATED TERMS
  1. Liquidity

    The degree to which an asset or security can be quickly bought ...
  2. Discount Rate

    The interest rate charged to commercial banks and other depository ...
  3. Federal Reserve Bank

    The central bank of the United States and the most powerful financial ...
  4. Federal Funds Rate

    The interest rate at which a depository institution lends funds ...
  5. Discount Window

    Credit facilities in which financial institutions go to borrow ...
  6. Credit Crunch

    An economic condition in which investment capital is difficult ...
Related Articles
  1. Economics

    The Federal Reserve

    Few organizations can move the market like the Federal Reserve. As an investor, it's important to understand exactly what the Fed does and how it influences the economy.
  2. Economics

    When The Federal Reserve Intervenes (And Why)

    The Federal Reserve doesn't interfere with the economy every time it flounders. Find out more here.
  3. Investing Basics

    Interest Rates And Your Bond Investments

    By understanding the factors that influence interest rates, you can learn to anticipate their movement and profit from it.
  4. Economics

    The Delicate Dance of Inflation and GDP

    Investors must understand inflation and gross domestic product, or GDP, well enough to make decisions without becoming buried in data.
  5. Economics

    Industries That Thrive On Recession

    Recessions are not equally hard on everyone. In fact, there are some industries that even flourish amid the adversity.
  6. Investing News

    What's the Fed Going to do in 2016?

    Learn about the factors that contribute to increases in the federal funds rate by the Federal Reserve and key economic indicators for 2016.
  7. Forex

    The Consumer Price Index

    Find out how this economic measure can help you make key financial decisions.
  8. Economics

    Understanding the History of Money

    Money has been a part of human history for at least 3,000 years, evolving from bartering to banknotes.
  9. Economics

    How Interest Rates Affect The U.S. Markets

    When indicators rise more than 3% a year, the Fed raises the federal funds rate to keep inflation under control.
  10. Economics

    Forces Behind Interest Rates

    Interest is a cost for one party, and income for another. Regardless of the perspective, interest rates are always changing.
RELATED FAQS
  1. What is a liquidity squeeze?

    A liquidity squeeze occurs when a financial event sparks concerns among financial institutions (such as banks) regarding ... Read Full Answer >>
  2. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  3. What is comparative advantage?

    Comparative advantage is an economic law that demonstrates the ways in which protectionism (mercantilism, at the time it ... Read Full Answer >>
  4. How does the Wall Street Journal prime rate forecast work?

    The prime rate forecast is also known as the consensus prime rate, or the average prime rate defined by the Wall Street Journal ... Read Full Answer >>
  5. What's the difference between microeconomics and macroeconomics?

    Microeconomics is generally the study of individuals and business decisions, macroeconomics looks at higher up country and ... Read Full Answer >>
  6. How do you make working capital adjustments in transfer pricing?

    Transfer pricing refers to prices that a multinational company or group charges a second party operating in a different tax ... Read Full Answer >>
Hot Definitions
  1. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  2. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  3. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  4. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  5. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  6. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
Trading Center