does increased Fed lending help capital impaired banks?
Does anyone understand exactly how the Fed's Term Auction Facility loans work, particularly in regards to a bank's capital requirements?
In particular, does borrowing money through the TAF in any way reduce the amount of capital a bank needs to keep on hand? Would these TAF loans give a breather to lenders who have reached a point where declining asset prices (of securities on their books) has forced them to raise additional capital in order to keep lending? Or does the TAF really do nothing to heal the ballance sheet of lenders who are having to take bigger and bigger charges due to the declining value of the securities they hold?
In other words, if a lender didn't have enough capital to lend prior to using the TAF, do their reserve ratios suddenly change once they tap Fed money (using their toxic securities as collateral), allowing them to lend that borrowed money out?
In particular, does borrowing money through the TAF in any way reduce the amount of capital a bank needs to keep on hand? Would these TAF loans give a breather to lenders who have reached a point where declining asset prices (of securities on their books) has forced them to raise additional capital in order to keep lending? Or does the TAF really do nothing to heal the ballance sheet of lenders who are having to take bigger and bigger charges due to the declining value of the securities they hold?
In other words, if a lender didn't have enough capital to lend prior to using the TAF, do their reserve ratios suddenly change once they tap Fed money (using their toxic securities as collateral), allowing them to lend that borrowed money out?
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