The U.S. Federal Reserve Board is extending and modifying a number of its liquidity programs, including its swap arrangements with the Bank of Canada, the Fed said Thursday.

The Fed says that conditions in financial markets have improved in recent months, “but market functioning in many areas remains impaired and seems likely to be strained for some time. As a consequence, to promote financial stability and support the flow of credit to households and businesses,” it is extending a number of facilities through early 2010.

Notably, the temporary reciprocal currency arrangements between the Fed and other central banks have been extended to February 1 2010. For example, the Bank of Canada and the Fed have agreed to extend their expanded US $30 billion swap facility, which was set to expire on October 30. It is also extending similar arrangements with the central banks of Australia, Brazil, Denmark, England, the European Central Bank, Korea, Mexico, New Zealand, Norway, Singapore, Sweden, and Switzerland.

The Bank of Canada said it “continues to judge that it is not necessary for it to draw on this swap facility at this time, but that it is prudent to maintain the agreement. Should the swap be drawn on, the details of the liquidity facilities provided would depend on the specific market circumstances at the time.”

The Fed has also extended its Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility. The expiration date for the Term Asset-Backed Securities Loan Facility currently remains set at December 31.

The Fed also announced changes to certain liquidity programs “in light of the improvement in financial conditions and the associated reduction in usage of some facilities.” Specifically, it trimmed the size of upcoming TAF auctions, because the amount of credit extended under that facility has been well below the offered amount. In view of very weak demand at certain TSLF auctions in recent months, these auctions are being suspended, while the frequency of other TSLF auctions will be reduced to one every four weeks and the offered amount will be reduced.

“The Board and the FOMC will continue to monitor closely the condition of financial markets and the need for and effectiveness of the Federal Reserve’s special liquidity facilities and arrangements. Should the recent improvements in market conditions continue, the Board and the FOMC currently anticipate that a number of these facilities may not need to be extended beyond February 1. However, if financial stresses do not moderate as expected, the Board and the FOMC are prepared to extend the terms of some or all of the facilities as needed to promote financial stability and economic growth,” it says.

IE