The Federal Reserve said it sold $1.15 billion in deposits in the first test of a credit-tightening tool it may use to drain a near-record amount of cash from the banking system.
The Fed offered $1 billion for 14 days through its Term Deposit Facility and received bids worth $6.14 billion, the central bank said Tuesday. The successful banks will deposit money with the Fed from June 17 to July 1, and receive interest of 0.27%. Banks currently receive 0.25% in interest on their excess reserves.
Fed Chairman Ben S. Bernanke is planning to use the program, which he says is analogous to a bank certificate of deposit, to eventually help policy makers raise interest rates. With $1.05 trillion in excess reserves in the banking system, Fed officials are looking for new ways to help achieve their target rate for overnight lending among banks.
The Fed also awarded $152 million in deposits through noncompetitive bids. The Fed said the auction drew 109 participants and 194 bids. The Fed may conduct four additional tests of the program. An auction for 28-day deposits will be held June 28, and a sale of 84-day deposits will be held July 12. Two other tests may be scheduled in the summer, the Fed said last month.