Term Securities Lending Facility


The Term Securities Lending Facility is a 28-day facility managed by the United States Federal Reserve that offers Treasury general collateral to the primary dealers in exchange for other program-eligible collateral. It is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally.
This is different from the System Open Market Account Securities Lending program which offers specific Treasury securities held by SOMA for loan against Treasury GC on an overnight basis. Dealers bid competitively in a multiple-price auction held every day at noon. The TSLF offers Treasury GC held by SOMA for a 28-day term. Dealers bid competitively in single-price auctions held weekly and borrowers will pledge program-eligible collateral.

History

TSLF was announced on 11 March 2008. By the end of the program it loaned out U.S. Treasury securities worth $2.3 trillion to just eighteen Wall Street banks. In 2008, as liquidity in the global markets came to a halt, the FED took action to allow the TSLF to expand the types of acceptable collateral: student loans, car loans, home equity loans and credit card debt, as long as it was highly rated. Ironically, many of the establishment rating firms were themselves shown to be of little worth in the preceding few years, and the ratings system was in the state of being reworked.
The collateral for the Term Securities Lending Facility also has been expanded; eligible collateral will now include all investment-grade debt securities. Previously, only Treasury securities, agency securities, and AAA-rated mortgage-backed and asset-backed securities could be pledged. This was one of many emergency lending programs of the Federal Reserve during the financial crisis of 2007–2008.