By Greg Robb, MarketWatch WASHINGTON (MarketWatch) -- The Federal Reserve and Treasury Department separately announced new steps Monday to deal with the continuing financial market turmoil. The Fed said it would increase the size of its loans to banks to a potential $900 billion by the end of the year. The announcement came as the central bank announced that it will begin to pay interest on bank reserves. This will give the Fed "greater scope" to address conditions in credit market. The Treasury steps were aimed at the massive borrowing needs that will be required to fund the new mortgage financing plan approved by Congress last week. Treasury said it will make adjustments to its auction calendar by increasing the size of bill and note auctions and continuing to issue cash management bills, some of longer-duration. In addition, the department said it was considering bringing back the 3-year note in November and taking other steps. The two agencies said that they are consulting with market participants on ways to support term unsecured funding markets. "Together these actions should encourage term lending across a range of financial markets in a manner that eases pressures and promotes the ability of firms and households to obtain credit," the Fed said. "The Federal Reserve stands ready to take additional measures as necessary to foster liquid money market conditions," the statement said.

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