Fed tests tool for draining cash from banking system

06/16/2010 | Bloomberg

The Federal Reserve has started testing its tool for credit tightening, selling $1.15 billion through its Term Deposit Facility. Ben Bernanke, chairman of the Fed, plans to use the program to drain funds from the banking system and help policymakers increase interest rates. The central bank also said it will use reverse-repurchase agreements to soak up liquidity. "The use of reverse repos and the deposit facility would together allow the Federal Reserve to drain hundreds of billions of dollars of reserves from the banking system quite quickly, should it choose to do so," Bernanke told lawmakers earlier this year.

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