US Fed moves to increase access to credit

THE US Federal Reserve yesterday intensified its efforts to tackle the financial crisis, pledging up to $800 billion to help homebuyers, small businesses and students to borrow.

The measures, aimed at cementing the Fed's role as the lender of last resort, underscore the extent to which policymakers are having to find new ways to help stabilise the financial system.

"I wish there was one action that we could take, and all this would end, and the financial system would turn around . . . but that is not the world we live in today," Hank Paulson, the US treasury secretary, said yesterday. "We are dealing with a historic situation that happens once or twice in 100 years."

Under one programme, the Fed said that it would start buying up to $600 billion in mortgage-backed assets from government-sponsored mortgage financiers, including Fannie Mae and Freddie Mac, before the end of the year. It would buy up to $100 billion of direct obligations from the agencies, starting next week.

Separately, the Fed said it was launching a $200 billion lending facility - term asset-backed securities loan facility, or Talf - to holders of asset-backed securities supported by car, credit card, student loans and business loans with the aim of encouraging lending at lower interest rates.

The US treasury is to provide $20 billion of funds from the $700 billion troubled asset relief programme to back the new facility. Mr Paulson emphasised the $200 billion was only a "starting point" to launch the programme for lending.

Yesterday's actions were "being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally", the US central bank said.

Initial market reaction to the initiatives was positive. In New York, the SP 500 index, which rose 6.5 per cent on Monday's bail-out of Citigroup, climbed 1 per cent before slipping to trade 0.1 per cent lower by midday.