WASHINGTON — The Federal Reserve Board's decision this week to expand its consumer lending program to up to $1 trillion could force the central bank to make tough choices about how to fund efforts to salvage financial markets.

The Fed plans to support the Term Asset-Backed Securities Loan Facility, which is expected to launch this month, by tapping the reserves financial institutions stash at the central bank. But on Wednesday those reserves totaled just $600.1 billion — more than thirty-three times higher than a year earlier but far less than what the Fed is ultimately on the hook to lend.

It is far from running out of money, but its few funding options, ranging from paying more interest on reserves to issuing its own debt notes or borrowing from the Treasury Department, carry significant downsides.

"It's becoming much more complicated," said Gil Schwartz, a former Fed lawyer who now works in private practice. "They have to come up with more creative ways to address the funding side."

Though the Fed has some running room, observers say time is running out. "They can't postpone this decision," said Mark Flannery, a professor of finance at the University of Florida. "People who pledge assets are going to want money right away."

One option is to persuade financial institutions to hold more reserves at the central bank. Until Congress gave it the authority last fall to pay interest on bank reserves, financial institutions typically did not hold much money at the central bank beyond what was required. On Sept. 3 banks held nearly $11 billion at the Fed. By Dec. 31, after the Fed spent months paying interest at rates well above the effective federal funds rate, reserves reached a high of $860 billion.

Banks were essentially playing a game of arbitrage. While the Fed's target rate was 1%, fed funds were trading for much lower in the market - as low as 0.11% on Dec. 10. That allowed banks to make significantly more money holding reserves at the Fed than they would have in the market.

But on Dec. 15, the Fed decided to lower its target rate to a range that was closer to the effective rates in the market. Since then reserves have steadily declined.

Reserve levels are expected to rise minimally once the Fed launches Talf, but it is not expected to give the central bank enough of a cushion. That has led some observers to argue that the Fed should pay more interest on reserves.

"It's not difficult to do, and I think the logic is that if banks are unwilling or unable to make loans to companies on their own, then the Fed will capture the capital necessary to make loans on their behalf," said Chris Low, the chief economist at First Horizon National Corp.'s FTN Financial Capital Markets. "As long as the Talf program is still needed, the financing has to come from excess reserves."

But such a scenario presents the Fed with several problems. For one, Mr. Schwartz said higher interest payments would equate to a "windfall" for bankers and would be unpopular in the current political climate. "Think of it as a subsidy for doing nothing other than maintaining reserves at the Fed," he said.

Observers also said a reserve level that is too high could complicate the Fed's ability to conduct monetary policy and would put the central bank in a competitive stance against the industry. "The Fed has essentially morphed into a competitor with the private-sector banking system, and in the process, it has accumulated considerable risk," Mr. Low said.

Another option for the Fed would be to borrow more money from the Treasury. The Federal Reserve Bank of New York began receiving money from the Treasury in September. The "supplementary financing account" held $200 billion on Wednesday after peaking at $558.9 billion on Nov. 12. The Treasury "will lend to the Fed what the Fed needs to maintain sufficient liquidity," said Bert Ely, an independent consultant in Alexandria, Va.

But Joseph Mason, a professor at Louisiana State University, said the Fed does not want to become reliant on the Treasury. "The Fed really doesn't want to borrow any more," he said. "We're already hearing … complaints about central bank independence."

Talf only served to tie the Fed even closer to the administration. Depending on the number of loans that go unpaid, the Treasury could kick in up to $100 billion for the program.

Even if Treasury wants to give the Fed more money, it is not clear it can do so. For one, the Treasury has committed much of its remaining Troubled Asset Relief Program funds to other projects.

Also, the Treasury "doesn't have the borrowing authority," said Lou Crandall, the chief economist at Wrightson ICAP LLC. "Their estimates show they will hit the current debt ceiling by the second quarter."

Congress could always raise the debt ceiling to accommodate lending to the Fed. Lawmakers agreed last summer, for instance, to increase the ceiling to $10.6 trillion to accommodate new powers the Treasury gained over the government-sponsored enterprises.

A third possibility floating in Fed circles — one that would require congressional approval — involves the central bank issuing its own debt, much like the Treasury does. But many observers are dismissing that idea as just another form of government debt.

"There's essentially no difference between Fed borrowing and Treasury borrowing," Mr. Low said. "It's still government debt."

According to Mr. Schwartz, the Fed could also fund its programs by selling off some of its securities. It held $514.1 billion as of Wednesday, including $474.9 billion of Treasuries.

As the Fed decides how to proceed, observers said one thing is clear — the central bank's role in the banking system will only grow as the Obama administration tries to fix the financial system.

"The Fed is intermediating risk in this country," Mr. Ely said. "Because of all the mistrust out there… intermediation is increasingly flowing through government balance sheets."

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