Current Issues in Economics and Finance

Alternative Arrangements for the Distribution of Intraday Liquidity

April 2006 Volume 12, Number 3
JEL classification: G0, G21

Author: James J. McAndrews

In July 2006, the Federal Reserve will end its provision of free daylight credit to government-sponsored enterprises (GSEs), financial services corporations created by Congress to establish a secondary market in mortgages and other consumer loans. To meet their payments to investors, the GSEs can use a wide variety of alternative funding arrangements. While such arrangements can in theory distribute liquidity efficiently, a decline in the intraday funds in circulation following the Fed’s move may lead to some slowing in payments by both the GSEs and commercial banks.

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