Term Securities Lending Facility - TSLF

A lending facility through the Federal Reserve that allows primary dealers to borrow Treasury securities on a 28-day term by pledging eligible collateral. The eligible securities under the term securities lending facility include 'AAA' to 'Aaa' rated mortgage-backed securities (MBS) not under review for downgrade, and all securities eligible for tri-party repurchase agreements. In exchange for this collateral, the primary dealers receive a basket of Treasury general collateral, which includes Treasury bills, notes, bonds and inflation-indexed securities form the Fed's system open market account.

The term securities lending facility is operated by the open market trading desk. It holds weekly auctions in which dealers submit competitive bids for the basket of securities in $10 million increments. At the Federal Reserve's discretion, primary dealers may borrow up to 20% of the announced amount.

Created on March 11, 2008, the Fed originally pledged $200 billion to this facility in an attempt to relieve liquidity pressure in the credit markets, specifically the mortgage-backed securities market. By creating this facility, primary dealers including Fannie Mae, Freddie Mac and major banks can access highly liquid and secure Treasury securities in exchange for the far less liquid and less safe eligible securities. This helps to increase the liquidity in the credit market for these securities.

This facility was chosen as a bond-for-bond lending alternative to the term auction facility (TAF), a cash-for-bond program that injects cash directly into the market. A direct injection of cash can affect the federal funds rate and have a negative impact on the value of the dollar. It is also an alternative to the direct purchases of the mortgaged investments, which goes against the Federal Reserve's aim to avoid directly affecting security prices.