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Online extra: The time for TAFs

The continuation and expansion of the term auction facilities is evidence that they actually work. But as with any medication, there are side-effects.

Since the credit crunch, central banks have been injecting massive amounts of money into the banking system in an effort to keep credit flowing. These measures have only been partly successful. In December, central banks in Europe and the US took the step of introducing term auction facilities (TAFs) as a further measure against the turmoil. A total of $65 billion was provided by the Federal Reserve, the European Central Bank and the Swiss National Bank, and the Bank of England added a further £8.5 billion.

At the time, the TAFs were given a mixed reception, with many investors hoping for “a bolder response to the growing housing and mortgage crisis”. Bankers too were unconvinced, saying that the cash injections would not be sufficient and needed to be augmented by other measures from the banks themselves.

However, unlike some other efforts to reopen the interbank market, TAFs have survived. The Fed is now launching two more to follow its two in December. Initially they were slated for the same amount as the first, at $20 billion apiece. But the Fed has increased the size of the second pair by 50%, to $30 billion each.

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