The minimum bid rate will be equivalent to the rate of interest that banks receive on excess reserve balances, which is currently 0.25%. This marks a change from the original arrangement, under which the minimum bid rate was determined by the average expected overnight federal funds rate over the term of the credit being auctioned.
The Fed created the TAF in December 2007 to provide short-term funds to banks affected by the lack of liquidity in funding markets. Under this program, the Fed auctions funds to banks against collateral that is accepted at the discount window.
See also: Fed to treble lending
TAF auctions hint at liquidity improvement