The Federal Reserve plans to hold an auction next week as part of an effort to make banks familiar with term deposits, a tool the central bank could use to drain excess reserves from the financial system.
The Fed said on Monday it will offer $5 billion in 28-day term deposits.
The offering is designed to familiarize banks with term-deposit operations.
The Fed injected money into the financial system as it battled the recession and financial crisis. Banks accumulated excess reserves. Too much money in the system can spur inflation. With term deposits, banks set up interest-bearing deposits at the central bank, similar to certificates of deposits that banks offer to retail customers. The facility gives banks an extra incentive to keep their money at the Fed instead of lending it out to companies and households, making credit harder to get.
The opening for bids starts at 10:00 a.m. Eastern time Monday and closes at 2:00 p.m. that day, the Fed announced.
Settlement is Sept. 22, 2011. The term deposits mature Oct. 20, 2011.
Under the Fed's facility, participating institutions can submit up to three competitive bids. The minimum amount per bid is $10,000, as is the minimum award.
The bid increment is $10,000 and the incremental bid rate is 0.001%.
The maximum bid amount per institution is $1.25 billion. The maximum award is $1.25 billion. The maximum bid rate will be 0.75%.
Banks also can submit noncompetitive bids for the offering. The minimum amount for a noncompetitive bid is $10,000. The maximum amount is $5 million and should be submitted in increments of $10,000.
The Fed said on Monday it will offer $5 billion in 28-day term deposits.
The offering is designed to familiarize banks with term-deposit operations.
The Fed injected money into the financial system as it battled the recession and financial crisis. Banks accumulated excess reserves. Too much money in the system can spur inflation. With term deposits, banks set up interest-bearing deposits at the central bank, similar to certificates of deposits that banks offer to retail customers. The facility gives banks an extra incentive to keep their money at the Fed instead of lending it out to companies and households, making credit harder to get.
The opening for bids starts at 10:00 a.m. Eastern time Monday and closes at 2:00 p.m. that day, the Fed announced.
Settlement is Sept. 22, 2011. The term deposits mature Oct. 20, 2011.
Under the Fed's facility, participating institutions can submit up to three competitive bids. The minimum amount per bid is $10,000, as is the minimum award.
The bid increment is $10,000 and the incremental bid rate is 0.001%.
The maximum bid amount per institution is $1.25 billion. The maximum award is $1.25 billion. The maximum bid rate will be 0.75%.
Banks also can submit noncompetitive bids for the offering. The minimum amount for a noncompetitive bid is $10,000. The maximum amount is $5 million and should be submitted in increments of $10,000.
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