The Federal Reserve’s programs to boost credit and liquidity in financial markets have more than doubled the size of the central bank’s balance sheet and it is set to grow much larger, Fed chief Ben Bernanke said today.
“[T]he balance sheet has more than doubled, from roughly $870 billion before the crisis to roughly $2 trillion now,” Bernanke said in a speech at the Credit Markets Symposium in Charlotte, North Carolina today.
He described three types of assets the Fed contains, noting the composition of the Reserve had changed significantly since the crisis began in late 2007, when it was nearly all Treasury securities.
The broad categories include:
1) Short-term credit - $860 billion - extended to support the liquidity of financial firms such as depository institutions, broker-dealers, and money market mutual funds
2) Assets – worth $255 billion - related to programs focused on broader credit conditions
3) Holdings of high-quality securities – totaling $780 billion - notably Treasury securities, agency debt, and agency-backed mortgage-backed securities
In the first category, $470 billion of that credit had been distributed through auctions and the remainder through conventional discount window loans.
The second type of lending, which comes from programs initiated by the Federal Reserve to improve functioning of “key credit markets” by lending directly to market participants, including ultimate borrowers and major investors. The programs are known as the Commercial Paper Funding Facility (CPFF) and the Term Asset-Backed Securities Loan Facility (TALF).
The Third major category is set to “grow considerably” after the Fed’s Federal Open Market Committee has announced it will purchase up to “$1.25 trillion of agency MBS and up to $200 billion of agency debt by the end of the year, and up to $300 billion of longer-term Treasury securities over the next six months.”