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.

  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. System Open Market Account - SOMA

    An account that is managed by the Federal Reserve Bank, containing ...
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