Treasury announces expansion of emergency borrowing program designed to help Federal Reserve

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Treasury announces expansion of borrowing program

WASHINGTON — Now that the government’s debt ceiling has been increased, the Treasury Department said Tuesday it will once again expand an emergency program created at the height of the financial crisis to help the Federal Reserve manage its books.

The Treasury said it will expand borrowing in the Supplementary Financing Program from $5 billion to $200 billion. During the financial crisis, the borrowing program hit a peak of $560 billion in 2008 but it was trimmed last fall to keep the government from breaching the debt limit.

The increase planned over the next two months will be accomplished by selling $25 billion in 56-day bills at weekly auctions which will be held every Wednesday.

Treasury officials said that they are resuming the debt sales to make sure that the Federal Reserve has the flexibility it needs to manage its balance sheet.

The money Treasury raises through the special debt sales is deposited in accounts at the Federal Reserve, providing the central bank with expanded assets on its books.

Treasury officials said they expected to keep the special debt program at a level of $200 billion for as long as the program is needed. That will be accomplished by auctioning further debt to replace the 56-day bills as they mature.

The supplementary financing program was created in the fall of 2008 but then drastically scaled back in September 2009 as the government approached the ceiling on the federal debt. Treasury trimmed the program, which at that time was running around $200 billion, down to $5 billion by the end of December.

That gave the government time before it hit a debt limit which in September stood at $12.1 trillion. The debt limit was later extended to $12.4 trillion in a temporary move before Congress this year passed a bigger increase which has pushed the government’s borrowing limit to the current $14.3 trillion. That legislation was signed into law by President Barack Obama on Feb. 12.