dealers were not especially susceptible to runs by their creditors. primary dealers typically rely on short - term secured financing arrangements, and the collateralization of those borrowings was thought sufficient to maintain the confidence of investors. consequently, dealers'liquidity management policies and contingency plans were typically based on the assumption that they would not be faced with a sudden loss of financing. but these beliefs were predicated on the assumption that financial markets would always be reasonably liquid. as i have already noted, recent events have proven that assumption unwarranted, and the risk developed that liquidity pressures might force dealers to sell assets into already illiquid markets. this might have resulted in allen and gale's fire sale scenario that i mentioned earlier, in which a cascade of failures and liquidations sharply depresses asset prices, with adverse financial and economic implications. this heightened risk led the federal reserve to expand its ability to supply liquidity to primary dealers. in march, to ease strains that had developed in the agency mortgagebacked securities market, the federal reserve initiated as part of its open - market operations a series of single - tranche repurchase transactions with terms of roughly 28 days and cumulating to up to $ 100 billion. for the purposes of these transactions, primary dealers can deliver as collateral any securities eligible in conventional open market operations. additionally, the federal reserve introduced the term securities lending facility ( tslf ), which allows primary dealers to exchange less - liquid securities for treasury securities for terms of 28 days at an auction - determined fee. recently, the federal reserve expanded the list of securities eligible for such transactions to include all aaa / aaa - rated asset - backed securities. by mid - march, however, the pressures in short - term financing markets intensified, and market participants were speculating about the financial condition of bear stearns, a prominent investment bank. on march 13, bear advised the federal reserve and other government agencies that its liquidity position had significantly deteriorated, and that it would be forced to file for bankruptcy the next day unless alternative sources of funds became available. a bankruptcy filing would have forced bear's secured creditors and counterparties to liquidate the underlying collateral and, given the illiquidity of markets, those creditors and counterparties might well have sustained losses. if they responded to losses or the unexpected illiquidity of their holdings by pulling back from providing secured financing to other firms, a much broader liquidity crisis would have ensued. in such circumstances, the federal

" associated with the discount window, which if anything intensifies during periods of crisis, arises primarily from banks'concerns that market participants will draw adverse inferences about their financial condition if their borrowing from the federal reserve were to become known. the federal reserve has taken steps to make discount window borrowing through the regular primary credit program more attractive. most notably, we narrowed the spread of the primary credit rate over the target federal funds rate from 100 basis points in august to only 25 basis points today. in addition, to address the pressures in term funding markets, we now permit depositories to borrow for as long as 90 days, renewable at their discretion so long as they remain in sound financial condition. these actions have had some success in increasing depository institutions'willingness to borrow. moreover, the existence of the option to borrow through the discount window, even if not exercised, likely has improved confidence by assuring depository institutions that backstop liquidity will be available should they need it. still, the continuing disruptions in short - term funding markets over recent months suggested that new ways of providing liquidity were necessary. last december, the federal reserve introduced the term auction facility, or taf, through which predetermined amounts of discount window credit are auctioned every two weeks to eligible borrowers for terms of 28 days. in effect, taf auctions are very similar to open market operations, but conducted with depository institutions rather than primary dealers and against a much broader range of collateral than is accepted in standard open market operations. the taf, apparently because of its competitive auction format and the certainty that a large amount of credit would be made available, appears to have overcome the stigma problem to a significant degree. indeed, a large number of banks – ranging from 52 to more than 90 – have participated in each of the 11 auctions held thus far. the taf has also simplified the implementation of monetary policy by providing greater predictability of the level of borrowings by depository institutions and consequently of bank reserves. the size of individual taf auctions has been raised over time from $ 20 billion at the inception of the program to $ 75 billion in the auctions this month. we stand ready to increase the size of the auctions further if warranted by financial developments. the recent market turmoil has also affected the liquidity positions of financial institutions that do not ordinarily have access to the discount window. in particular, prior to the recent experience, it was believed that primary