The U.S. Federal Reserve on Tuesday said it was reducing the maximum maturity of loans from its discount window to 28 days from 90 days in light of the improvement in financial market conditions.
The Fed said the change would take effect on January 14 and that these so-called primary credit loans it makes to banks would remain eligible for renewal at the borrower's request.
Some analysts viewed the move as a sign that the Fed, after flooding the financial system with unprecedented amounts of liquidity to try to lift the economy out of a prolonged recession, will now try to slowly withdraw it.
The concerted objective of international monetary policy in the next 12 months will be to gradually wean the markets off the extraordinary liquidity support provided during the peak of the crisis, said Lena Komileva, economist at Tullett Prebon.
When the financial crisis first struck in August 2007, the Fed extended the maturity on discount window loans to 30 days to help financial institutions which were having trouble securing credit. Historically, the loans are usually just overnight.
It lengthened the maximum term to 90 days in March last year in a further effort to combat the credit crisis.
(Reporting by Tim Ahmann; Editing by James Dalgleish)