Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Tutoring
  • Home
  • Economics, Finance, & Analytics
  • Banking, Lending, and Credit Industry

Lending Facility - Explained

What is a Lending Facility?

Written by Jason Gordon

Updated at April 18th, 2022

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

Table of Contents

What is a Lending Facility?How Does a Lending Facility Work?Lending Facility and Term Auction FacilityHistory and Development of Lending Facilities

What is a Lending Facility?

The lending facility is a means in which financial assistance is being provided to banks and other financial institutions. These financial institutions must be U.S Federal reserve accredited. This is done to enable these financial institutions to meet up reserve requirements by Central bank. On the other hand, central banks may use lending facilities to maintain cash flow over a long period of time.

Back to:BANKING, LENDING, & CREDIT INDUSTRY

How Does a Lending Facility Work?

A lending facility performs a wide range of functions from supporting financial institutions with additional capital for development, satisfying a reserve requirement to supporting financial institutions to achieve their financial expectations. Lending facilities are an important resort in terms of needs for any financial institution. Banks would definitely need a lending facility because the Financial Services Regulatory Relief Act of 2006 states that banks must have a certain cash amount after all transactions. This requirement with the interest rate on reserves is stipulated in the act by the Federal Reserve's Board of Governors. With this legislation, banks strive to maintain a tangible amount of money as their reserve and when this reserve requirement is not achieved, a lending facility comes in. Reserve requirements are one of the three main tools of monetary policy, others include market operations and discount rates. These reserve requirements are set by the U.S. Federal Reserve (or Fed's) board of governors. Likewise, this bank reserve must usually be secured in a vault or a Federal Reserve Bank depending on the proximity of the bank to the Federal Reserve Bank, otherwise, in a vault.

Lending Facility and Term Auction Facility

In a press release by the Federal Reserve System Board of Governors in 2007, Term Auction Facilities existed for the primary purpose of eliminating issues in short-term funding markets. Term Auction Facilities refer to a means by the Federal Reserve to increase money flow in the financial market and also provide loans to financial institutions who deal in deposits such as banks, credit unions, savings and loan associations. TAF's are primarily created to provide solutions to any funds associated with problems in the short term funding markets.

History and Development of Lending Facilities

Lending facilities are solely created to provide capital to financial institutions. They are long-existing means aiding liquidity in the very moment of needs. They are structured in the form of term auction facilities: term securities lending facilities, treasury automated auction processing systems (TAAPS) or overnight lending markets. They have been in existence to be the solution to the collateral requirement of the central bank for loans.

lending facility

Was this article helpful?

Yes
No

Related Articles

  • Interest (Debt) - Explained
  • Annual Percentage Rate - Explained
  • Line of Credit - Explained



©2011-2023. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand