Term Auction Facility

AB reader Henry Cobb is very concerned about this:

US banks have been quietly borrowing massive amounts of money from the Federal Reserve in recent weeks by using a new measure the Fed introduced two months ago to help ease the credit crunch. The use of the Fed’s Term Auction Facility, which allows banks to borrow at relatively attractive rates against a wider range of their assets than previously permitted, saw borrowing of nearly $50bn of one-month funds from the Fed by mid-February.

Bill Polley is less worried:

In early fall we were hearing that banks were too scared of the stigma of borrowing at the discount window and that something had to be done to get them to step up. Remember this? So it seems a little odd to get worked up about this now–except for the fact that the collateral requirements are less stringent than for open market operations. So yes, on the margin, this is less secure.

Bill also notes, however, that the banks that allowed to borrow from the Term Auction Facility are generally in good condition. These banks could have easily borrowed from the ordinary discount window, but are likely shy in regards the possible “stigma” of doing so.