Treasury's supplementary financing program is here to least until 09/2009

Tuesday, April 28, 2009

In September 2008, the Treasury and the Fed announced a new and temporary Treasury Supplemental Financing (SFP) account to aid in the Fed's quickly expanding liquidity facilities by sterilizing some of the flows. Since then, one must look closely to see the story developments around the SFP.

In November 2008, the Treasury announced that it would be unwinding the SFP account "in coming weeks".

In February 2009, the Treasury announced that it expected to borrow $165 billion of marketable debt for the April-June 2009 quarter. This did not include funds to replenish the SFP account, as the program was deemed temporary.

In April 2009, the Treasury announced that its April-June 2009 actual borrowing was $196 billion greater than its February estimate of $165 billion, due in part to the unannounced continuation of the SFP account.

In April
2009 (same statement as above), the Treasury announced an expected $515 billion in borrowing for the July-September 2009 quarter, with an explicit $200 billion borrowing to fund the SFP account.

I assumed that the Treasury would have unwound the SFP account completely by now; but instead, it is issuing new debt to keep the account funded. Perhaps the Fed will use this account (at some point) as a method to soak up reserve balances when it wants to unwind the liquidity. But one thing is for sure, this temporary program is set to last at least until September 2009.

Rebecca Wilder


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