Term Auction Facility

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Term Auction Facility (TAF) was a temporary tool used by the U.S. Federal Reserve to ease stress in short-term funding markets. The Fed auctioned collateralized loans of 28- and 84-days to depository institutions in good financial condition, using the same collateral as the discount window. Created in December 2007 during the subprime crisis, TAF aimed to narrow the gap between overnight and longer interbank lending rates and to reassure banks about lending. It was part of a global effort with other central banks to provide dollar liquidity. Banks were reluctant to borrow from the discount window, so TAF offered an alternative. The first auctions in December 2007 sold $20 billion of loans; bids totaled more than $63 billion. The program ran until March 2010. The peak balance reached $483 billion in March 2009, and the Fed earned more than $700 million in profits that year. In total, about $6.18 trillion was loaned through TAF, making it one of the Fed’s major stabilization tools.