Central banks in Europe and the United States today announced further efforts to bolster market liquidity.

The European Central Bank, the U.S. Federal Reserve Board, and the Swiss National Bank announced an expansion of their liquidity measures, “in view of the persistent liquidity pressures in some term funding markets”.

The Federal Reserve announced an increase in the amounts, from US$50 billion to US$75 billion, that it auctions to eligible depository institutions under its biweekly Term Auction Facility (TAF), beginning with the auction on May 5. This increase will bring the amounts outstanding under the TAF to US$150 billion.

In conjunction with the increase in the size of the TAF, the Federal Open Market Committee has authorized further increases in its existing temporary reciprocal currency arrangements with the ECB and the SNB. These arrangements will now provide dollars in amounts of up to US$50 billion and US$12 billion to the ECB and the SNB, respectively, representing increases of US$20 billion and US$6 billion. The FOMC extended the term of these reciprocal currency arrangements through January 30, 2009.

In addition, the FOMC is expanding the collateral that can be pledged in the Term Securities Lending Facility auctions. Primary dealers may now pledge AAA-rated asset-backed securities, in addition to already eligible residential- and commercial-mortgage-backed securities and agency collateralized mortgage obligations, beginning with the auction to be announced on May 7. “The wider pool of collateral should promote improved financing conditions in a broader range of financial markets,” it said.

The Governing Council of the ECB said it will continue the provision of U.S. dollar liquidity for as long as the council considers it to be needed in view of the prevailing market conditions.