A fresh Federal Reserve facility to pump up to $200 billion into stressed financial markets should help improve market functioning by quickly making a large amount of liquidity available, senior Fed officials said on Tuesday.
The officials told reporters during a background briefing that the Fed had yet to finalise the scale of the "haircuts" on collateral deposited to take advantage of this new liquidity line, but they said it would be conservative.
The Fed also said that the private-label mortgage-backed securities it would accept as collateral must be AAA-rated and could not be on watch-list for rating downgrade. If they were placed on a watch-list, they would have to be substituted, they said.
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