Thursday, September 9, 2010

Bernanke to Test His Tool

The Fed has announced that it will conduct further term deposit facility auctions.  The deposit facility is another one of the new tools developed by Bernanke to manage monetary policy.

The Fed began testing its new term deposit facility for banks in June, using auctions to offer term deposits for banks that are akin to the certificates of deposit banks offer retail customers. The deposit facility auctions drain money from the system, as banks buying the facilities would hand money over to the Fed where the money would be taken out of the system.

In its latest announcement, the Fed said it expects to conduct term deposit facility auctions about every other month to ensure the tool is operationally functional for Bernanke should he need to use it to drain funds.

It should be noted that this tool, although it appears to be a sound method to drain funds from the system, has never been tested under stress conditions.


  1. "Bernanke to Test His Tool"

    Bernanke IS a tool! (For World Communism.)

  2. Also relevant is the primary credit rate, discussed recently, as TDF bills can be used as collateral at the discount much for locking up funds.

  3. "Bernanke to Test His Tool"
    Lets hope he does not over work it!!!!,does he know that doing it to often can make him blind(or is dumb & stupid)

  4. I don't understand how this will reduce the money supply in the longer term. Sure, the money supply will reduce for the term of the deposit with the Fed. (What's the expected term?). But when the deposit matures isn't the money supply going to be even greater since the money is returned to the bank with interest?