The Federal Reserve Board said Friday that it would extend its term loan auctions into February as part of its efforts to curb the liquidity crisis.
Auctions will be held on Feb. 11 and Feb. 25 on $30 billion of loans. The central bank is encouraging more participation from small institutions by cutting the minimum bid by half, to $5 million.
Demand for the loans has dwindled steadily since the first sale in December, which attracted 93 bids worth $61.553 billion. The most recent auction, on Jan. 28, generated 52 bids worth $37.452 billion. Loans for that auction carried a 3.123% interest rate, down from the 3.95% rate the Fed charged on loans in the Jan. 14 sale.
Banks see the auctions as an alternative to borrowing from the discount window, which is more expensive and carries a stigma.
