Fed plans test operation of term deposit facility next week; ‘no implications for monetary policy’

One operation this month of the Term Deposit Facility (TDF) will be tested by the Federal Reserve, with the aim of ensuring its operational readiness and providing the institutions that may use it some degree of familiarity, the agency said Thursday.

The TDF is a program through which Federal Reserve Banks offer interest-bearing term deposits to eligible institutions.

In a release, the Fed said the test operations are a matter of prudent planning and “have no implications for the near-term conduct of monetary policy.”

The Fed said that in a week (on May 30), it will conduct a floating-rate offering of term deposits with an early withdrawal feature through the TDF. Seven-day term deposits with a rate set equal to the sum of the interest rate paid on excess reserves plus a fixed spread of 1 basis point will be offered. The maximum tender amount per institution will be $250 million. The agency said the operation window will be open from 10:30 a.m. EDT to 12:30 p.m. EDT, and awarded deposits will settle the same day the operation is executed.

Federal Reserve to offer seven-day term deposits on May 30