The Supplementary Financing Program is making a comeback.

2008

On September 17, 2008, the Treasury Department announced the Supplementary Financing Program. Under this program, the Treasury issues marketable debt and deposits the proceeds in an account at the Federal Reserve that is segregated from the Treasury General Account. The effect of the account is to drain balances from the deposits of depository institutions, helping to offset, somewhat, the rapid rise in balances that resulted from the various Federal Reserve liquidity facilities.

2010

The Treasury Department said it will increase the size of the Supplementary Financing Program, or SFP, from $5 billion to $200 billion. The increase will be completed over two months in the form of eight $25 billion, 56-day Treasury bill sales. Beginning Wednesday, the sales will be held each Wednesday at 11:30 a.m. EST.

This action could be used to drain reserves, however if that was the purpose, the Fed could just sell T-Bills or some of the $1 trillion in MBSs it currently holds. Will the Fed instead of flushing reserves instead use the funds to make new asset purchases? Currently the Fed is about $200 billion short of its goal of purchasing the stated objective of $1.25 trillion MBS, so this could be the purpose of the auctions. A few weeks ago the US public debt ceiling was raised by $1.9 trillion on to $14.3 trillion, giving the Treasury plenty of room to sell the $200 billion in short term notes.