Dodd-Frank News Center

Primary Dealer Credit Facility Examined

This story appeared in Bank Digest.

In their continuing series on the emergency lending facilities created to address the financial crisis, New York Federal Reserve Bank Vice President Tobias Adrian and Research Officer Ernst Schaumburg examine the Primary Dealer Credit Facility (PDCF), which they describe as a borrowing facility open to any of the Federal Reserve Board's registered primary dealers--a subset of securities brokers and dealers that have an ongoing trading relationship with the Fed in their capacity as market makers for Treasury securities.

Fed Officials Testify About Lending Disclosures and Dodd-Frank Compliance

This story appeared in Bank Digest.

In a hearing (webcast) before the House Subcommittee on Domestic Monetary Policy and Technology, Scott G. Alvarez, General Counsel, Federal Reserve Board, and Thomas C. Baxter Jr., General Counsel, Federal Reserve Bank of New York provided testimony the different ways in which the Federal Reserve informs Congress and the American people about our policies and actions. The witnesses noted that their testimony was to “promote understanding of how the Federal Reserve fosters financial and economic stability and to facilitate an evaluation of our actions while also preserving the ability to effectively fulfill the responsibilities that the Congress has given the Federal Reserve.” They also described the Federal Reserve’s compliance with the disclosure provisions of the Dodd-Frank Act, as well as the March 2011 release, under the Freedom of Information Act, of documents regarding the use of the Federal Reserve’s discount window during the crisis.

Reg. W Exemption Provided for Purchase of Merrill Lynch Assets

This story appeared in Bank Digest

The Fed has granted Bank of America Corporation an exemption from Section 23A of the Federal Reserve Act and Regulation W to allow Bank of America, National Association, to purchase certain credit facilities from its affiliate, Merrill Lynch & Company, Inc.

In seeking the exemption, Bank of America Corporation noted that consolidating the two assets in its national bank subsidiary would better align the ongoing business and management of the assets with the bank's existing business unit, risk-management processes, and controls. Bank of America Corporation added that it was in the process of “transitioning towards a single, integrated operating model that will involve the alignment of one personnel unit to cover particular types of assets and technology platforms and to provide uniform underwriting and risk-management policies and procedures.”

Temporary U.S. Dollar Liquidity Swap Facilities Re-Established

This story appeared in Bank Digest.

In response to the re-emergence of strains in U.S. dollar short-term funding markets in Europe, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing the re-establishment of temporary U.S. dollar liquidity swap facilities. These facilities are designed to help improve liquidity conditions in U.S. dollar funding markets and to prevent the spread of strains to other markets and financial centers. The Bank of Japan will be considering similar measures soon. Central banks will continue to work together closely as needed to address pressures in funding markets. The Federal Open Market Committee has authorized temporary reciprocal currency arrangements (swap lines) with the Bank of Canada, the Bank of England, the European Central Bank (ECB), and the Swiss National Bank. The arrangements with the Bank of England, the ECB, and the Swiss National Bank will provide these central banks with the capacity to conduct tenders of U.S. dollars in their local markets at fixed rates for full allotment, similar to arrangements that had been in place previously.

Monthly Report Issued on Credit and Liquidity Programs and Fed Balance Sheet

This story appeared in Bank Digest.

The Federal Reserve Board has issued its monthly report on the credit and liquidity programs that were created to address the financial crisis and the effect those programs have had on the Fed’s balance sheet. The report was issued as part of the Fed’s efforts to enhance transparency and to ensure appropriate accountability to Congress and the public concerning policy actions taken to address the financial crisis.

Monthly Report Issued on Fed’s Credit and Liquidity Programs

This story appeared in Bank Digest.

The Fed has issued its monthly report on the credit and liquidity programs that were created to address the financial crisis and the effect those programs have had on the Fed's balance sheet. The report was issued as part of the Fed's efforts to enhance transparency and to ensure appropriate accountability to Congress and the public concerning policy actions taken to address the financial crisis.

Future of Credit Availability Examined

This story appeared in Bank Digest.

The Office of the Comptroller of the Currency has issued Economics and Policy Working Paper 2009-6 entitled “The U.S. Financial System in 2011: How Will Sufficient Credit Be Provided?” The paper was authored by Susan Hickok and Daniel Nolle and uses Flow of Funds data to construct a bird's-eye view of what the credit-provision landscape might look like, particularly for banks, once the current financial system turmoil subsides.

FDIC Establishes Limited Six-Month Emergency Guarantee Facility

This story appeared in Bank Digest.

To ensure an orderly phase-out of the Debt Guarantee Program, a component of the Temporary Liquidity Guarantee Program, the FDIC is establishing a limited emergency guarantee facility. For most insured depository institutions and other participating entities, the Debt Guarantee Program will conclude on Oct. 31, 2009, with the FDIC’s guarantee expiring no later than Dec. 31, 2012. To the extent that certain of those entities become unable to issue non-guaranteed debt to replace maturing senior unsecured debt because of market disruptions or other circumstances beyond their control, the emergency guarantee facility will be available on an application basis. In order to utilize the emergency guarantee facility, an entity must apply to, and receive prior approval from, the FDIC. If the application is approved, the FDIC will guarantee the applicant’s senior unsecured debt issued on or before April 30, 2010. Debt guaranteed under the emergency guarantee facility will be subject to an annualized assessment rate equal to a minimum of 300 basis points.

Interplay Between TLGP and Investment Securities Regulations Discussed

The Office of the Comptroller of the Currency has issued an Interpretive Letter discussing the interplay between the agency’s Investment Securities Regulations and the Federal Deposit Insurance Corp.’s Temporary Liquidity Guarantee Program (TLGP). In Interpretive Letter No. 1109, the OCC was asked whether the guarantee of a qualifying debt security under the TLGP would transform the security into a Type I security for purposes of the investment securities regulations at 12 CFR Part 1. The OCC concluded that in cases where the security’s tenor is coextensive with the term of the guarantee, the security will qualify as a Type I security. In cases where the security’s tenor exceeds the term of the FDIC guarantee, the security will not qualify as a Type I security.

Funding for Business and Household Lending to be Available

As part of the Financial Stability Plan, the Treasury Department and Federal Reserve Board have launched the Term Asset-Backed Securities Loan Facility (TALF) as a component of the Consumer and Business Lending Initiative (CBLI). The TALF has the potential to generate up to $1 trillion of lending for businesses and households. To implement the CBLI, the Federal Reserve Bank of New York will lend up to $200 billion to eligible owners of certain AAA-rated asset-backed securities (ABS).

In addition, the Fed revised the terms and conditions for the TALF and released a revised set of frequently asked questions. The revisions include a reduction in the interest rates and collateral haircuts for loans secured by asset-backed securities guaranteed by the Small Business Administration or backed by government-guaranteed student loans.  The modifications are warranted by the minimal credit risk on these assets owing to the government guarantees, and, by making the terms of the TALF loans more attractive, they should encourage greater flows of credit to small businesses and students. http://www.federalreserve.gov/newsevents/press/monetary/20090303a.htm