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fomc | 2,007 | I was delighted to hear this morning that employment of lawyers is now a factor in assessing the robustness of the economy. I recommend that in the Committee's drive for transparency, however, the FOMC not disclose this new factor because undoubtedly there will be those among my colleagues in the legal profession who w... | 703 |
fomc | 2,007 | Are there any questions for Scott? Well, it appears that one thing we can do is just do it. Precedents have been pretty effective in this Committee. For example, our circulation of table 1 has become a regular modus operandi. That does leave flexibility. On the other hand, if others would like to go further, that's fin... | 97 |
fomc | 2,007 | My sense of the table is, then, that we will just begin the practice at the next meeting of voting on the entire statement. That, of course, raises the possibility for dissent based on the statement. We have to use good judgment on that particular decision. If there is dissent on the statement, Scott, it would be expla... | 71 |
fomc | 2,007 | That's the current practice. That's right. | 8 |
fomc | 2,007 | That's the same practice we use for a dissent on the action. | 13 |
fomc | 2,007 | Mr. Chairman? | 4 |
fomc | 2,007 | Yes. | 2 |
fomc | 2,007 | I don't feel strongly, but would it make more sense to have this change be consistent in time with changes in communication strategy more broadly? Now, recognizing this is not of the same import, but rather than have a question be raised and then have to explain it through our communication folks and others, I wonder w... | 81 |
fomc | 2,007 | Well, if our communication schedule continues along current lines--and we can discuss that next--it would in fact be in these minutes that we made this decision, right? | 34 |
fomc | 2,007 | Well, if we're just going to do it, we haven't had a vote yet. | 17 |
fomc | 2,007 | So would it be okay if we just put this in the October minutes, reflecting the first time we took that action? | 24 |
fomc | 2,007 | Right. | 2 |
fomc | 2,007 | This would be just a discussion. | 7 |
fomc | 2,007 | All right. In that case, it would be part of the overall description. Okay. That's a good suggestion. Thank you. Anyone else? | 29 |
fomc | 2,007 | I'm sorry. I'm confused about that. This is an agenda item at this meeting. | 17 |
fomc | 2,007 | That's true. | 3 |
fomc | 2,007 | We could just say that this is our sense at this meeting of what we're going to do now and just leave it at that. | 26 |
fomc | 2,007 | Well, we also have another element coming up right now--an update by Governor Kohn on the communication strategy. | 23 |
fomc | 2,007 | The Committee needn't take a formal position today on what it does, particularly if the discussion suggests that the Committee simply wants to act when the time is right. So the minutes could be very general. | 40 |
fomc | 2,007 | I don't attach much substance to this. I don't think very many people even know or care or would view this as a change. | 26 |
fomc | 2,007 | All else being equal, we'll try to get it into the October minutes. But if it turns out to be a problem, we'll address it. Any other comments? Don, do you want to update us on the projections? | 45 |
fomc | 2,007 | Thank you, Mr. Chairman. We are planning right now to go live with the enhanced projections process after the October meeting. The plan is to have a speech by the Chairman in early November, and then the forecast and its narrative would be published with the minutes of the October meeting, so three weeks into November.... | 332 |
fomc | 2,007 | Governor Mishkin. | 4 |
fomc | 2,007 | I was completely fine with the proposal. The only thing it mentioned that I would slightly differ on is that I would like the box on uncertainty to come out with every forecast narrative--you know, the four times a year deal. The negative is that it would be the same each time, so there would not be much that is new. B... | 147 |
fomc | 2,007 | Other comments? Vice Chairman? | 6 |
fomc | 2,007 | I feel generally comfortable with the trajectory you're on and with the evolving shape of this thing. There is one issue still where it seems to me we don't quite have it right, which is that the narrative description does not, because it really cannot, describe the story that is reflected in the central tendency of th... | 199 |
fomc | 2,007 | I think the staff shouldn't hesitate to talk about different points of view. It is not at all necessary to come up with or try to manufacture a consensus narrative. | 32 |
fomc | 2,007 | I didn't mean to suggest not having anything that reflects the dispersion of views or the uncertainty around those views. But right now it's so skeletal that it doesn't add much value to the tables, and it gives in some ways less texture than what is in the minutes, frankly, about the outlook over time. If the central ... | 192 |
fomc | 2,007 | President Rosengren. | 5 |
fomc | 2,007 | A lot of us this morning discussed tail risk, and it does seem that the tables we have right now might not capture the nature of tail risk that actually was critical to a lot of that discussion. Some things that are related to your ability to forecast variables are tied to uncertainty. But looking forward, there are al... | 170 |
fomc | 2,007 | We have a section on the risks, though, right? | 12 |
fomc | 2,007 | And the skews. It should be possible in that context. | 13 |
fomc | 2,007 | It's hard to think about exactly how to do that in terms of the survey, but certainly that's exactly where the narrative would have a lot of value because it's really hard to do it just in terms of some kind of standard survey. I hope that in the future we won't have many discussions like today's, but we might. Maybe t... | 73 |
fomc | 2,007 | Yes, it gets to the texture that Tim was getting at. I was thinking about maybe having a question that tries to capture it so that we could at least respond to it if it's an important point for us to cover. | 45 |
fomc | 2,007 | Other comments? Okay. Thank you. Our last item is approaches to stabilizing money markets. Let me make, if I might, just a few introductory comments about where this came from and what we're asking of you today. As we have been thinking about various money market issues, two things have come up. One is that there have ... | 111 |
fomc | 2,007 | I move to close the meeting. | 7 |
fomc | 2,007 | Without objection. Thank you. The first issue is the need for dollar funding and dollar term funding by European banks, which has caused problems in Europe but also has bled over to some extent to dollar markets in the United States. We have been in conversations at various times with Europe about a swap arrangement th... | 700 |
fomc | 2,007 | Could I ask a question? | 6 |
fomc | 2,007 | Yes, please. | 4 |
fomc | 2,007 | What does a closed meeting mean, Scott? Does it mean there's a transcript, with a normal release, or there's no transcript? | 26 |
fomc | 2,007 | The FOMC continues to be in meeting, and so what is happening here is part of the transcript of the FOMC. But on top of that is a Board meeting. The Board meeting has only minutes. Those minutes are very summary. The current plan is that they won't be released until after Thursday. | 63 |
fomc | 2,007 | But the minutes of the FOMC meeting will be released in two weeks? | 16 |
fomc | 2,007 | They will be very general--something like there was a discussion of means to address money market issues. | 20 |
fomc | 2,007 | Explore the range of options to address. | 8 |
fomc | 2,007 | Exactly. President Lacker. | 6 |
fomc | 2,007 | Another question about governance. Maybe this isn't the appropriate time, but do you envision that approval by Reserve Bank boards of directors would be required for this facility? Is that part of the governance, or is that maybe a question for later? | 47 |
fomc | 2,007 | Go ahead. | 3 |
fomc | 2,007 | Well, the auction credit facility doesn't require the approval of the Reserve Banks. The Board is required to set the rules for lending under 10B, which is what we'll explain in the program. However, the interest rate on loans under the credit facility would, of course, be established by the Reserve Banks and reviewed ... | 145 |
fomc | 2,007 | All right. So they would have to act to make the rate they set determined by this process. | 20 |
fomc | 2,007 | Right. Like seasonal credit works today. | 8 |
fomc | 2,007 | Why don't you go ahead and make your presentation, and then we'll take questions. | 16 |
fomc | 2,007 | Thank you, Mr. Chairman. Your introductory remarks and the questioning and some answers that we just had covered some of the points that I was going to make in my introductory comments. It has been a long day already, and you received a detailed memo. So in view of that, we thought we would abbreviate our briefings rel... | 480 |
fomc | 2,007 | 4 Thank you. I will discuss at a high level some of the operational aspects of the auction credit facility. Yesterday, SCRM (Subcommittee on Credit Risk Management) members and discount window officers at your Reserve Banks talked together about the operational details. Although they have had only hours to learn and to... | 855 |
fomc | 2,007 | In conjunction with the establishment of the ACF, the staff proposes that the FOMC authorize temporary reciprocal currency arrangements with the European Central Bank and the Swiss National Bank. These facilities would provide dollar financing for parallel credit auctions for euro area and Swiss banks, which the staff ... | 367 |
fomc | 2,007 | Are there questions for the staff? President Fisher. | 10 |
fomc | 2,007 | Just so I understand this, let's say Paribas shows up at our auction window. Can they also show up at the European window, or are we going to make sure that there's no duplication? How do you make sure there's no duplication so that foreign banks might get an advantage or vice versa? | 59 |
fomc | 2,007 | They will be able to bid in both, President Fisher. | 12 |
fomc | 2,007 | Just as our banks will be able to bid in both. | 12 |
fomc | 2,007 | That's why I said vice versa. So for certain banks, holding companies, or organizations, there is really more than the stated limit, right? | 29 |
fomc | 2,007 | Well, the Europeans are going to impose a structure. It's not "no limit"; it's the sum of the two. | 24 |
fomc | 2,007 | I understand that. I just wanted to make sure that that was the case. Thank you. | 19 |
fomc | 2,007 | Governor Kroszner. | 6 |
fomc | 2,007 | Two things, one related to that. On the first page, you said that you consolidate all the foreign banking organizations. So in the United States they would just operate as one, even though they may have different subsidiaries, and they will be treated as one organization, even if formally they have multiple organizatio... | 65 |
fomc | 2,007 | Under the single-bidder guidelines, they'd be treated as one. But for extensions of credit, that's done at the local Reserve Bank. So their bids would be combined and treated as one, and then they would be disaggregated so the loans could be booked at the local Reserve Bank. | 59 |
fomc | 2,007 | But again, for Paribas, for example, which can come to our discount window, the total sum would be 20 percent for any single credit across the System, even though it might be pieced out by Bank. | 45 |
fomc | 2,007 | Correct. | 2 |
fomc | 2,007 | Thank you. | 3 |
fomc | 2,007 | Second, in terms of the timing of the auction itself, are there any challenges because of some of the delays here? This seems like a somewhat slower process than some other auctions that are run--the bids are submitted on Monday, and the notification isn't until Wednesday. | 53 |
fomc | 2,007 | Yes. We've given ourselves a lot of time just because of the uncertainty associated with it, with an opportunity to change it if we were to do this over time with learning. | 35 |
fomc | 2,007 | So you have the flexibility, if you get used to it, to be able to do it almost in real time. | 24 |
fomc | 2,007 | Right. The preference is for settlement always to be on Thursday, so we can time it with open market operations and, to the extent that this is or is not combined with actions in Europe, with some time parameters that might be sensitive to European time zones. But in terms of how long it takes to run a somewhat automat... | 96 |
fomc | 2,007 | One point in this regard, Governor Kroszner, is that we'll be taking the bids over the telephone. That just means that there is going to be a certain amount of time depending on how many bidders show up. It's not a fully automated process. | 52 |
fomc | 2,007 | President Rosengren, question? | 7 |
fomc | 2,007 | I think that this is a very creative solution to thinking about the stigma issue and providing liquidity to the market, so I applaud the effort to try to broaden the tools that we have to think about these kinds of issues. When I was thinking about how this might actually work, I did come up with a couple of operationa... | 677 |
fomc | 2,007 | Well, starting with the last question, I think the sense is that it's a dollar funding problem. Obviously, the markets are deepest here, so that's part of the interest in offering it here to the broad range of institutions and the institutions that need it. It is also related to your question about the limits. One thin... | 149 |
fomc | 2,007 | Could I add a couple of thoughts before you move on to the next thing? The concerns of the sort you raised are part of the reason that the swap is being proposed at all. Consider just doing the ACF. These are duly licensed depository institutions in the United States. If we were to create the ACF but to say that no dul... | 131 |
fomc | 2,007 | But we would know whether they have access to an ACF facility in Europe or an ACF facility here, and it would seem as though saying that you have access to an ACF facility somewhere would not exclude, say, the Canadians or the Japanese but would exclude the Europeans if they were participating in the same program. | 64 |
fomc | 2,007 | I'll leave that to the lawyers to decide. But I am suggesting that by creating a swap, the staff had a presumption that the Europeans could work with the ECB and a certain hope, if nothing else, that they would work with the ECB. Otherwise, with no swap, we have basically put them back in the position that they are get... | 74 |
fomc | 2,007 | If I could just make two points. One reason that you might want to let them borrow in both places is that their collateral may be in both places, and they may have different availability of collateral in the two locations. The second reason is that your goal at the end of the day is to get the money to those who most n... | 102 |
fomc | 2,007 | We make that distinction already in the discount window with primary and secondary. So if you are at a CAMEL rating of 4 or 5, we normally would not allow you to borrow as a primary credit. If we are taking the discount window as an analogy, yes, we want to give it to the people who need it, but we don't want to give i... | 90 |
fomc | 2,007 | No, I think we all agree on that. [Laughter] | 14 |
fomc | 2,007 | But I think it's clear in the documentation that to be eligible to bid you have to be eligible to borrow at the primary credit facility. | 27 |
fomc | 2,007 | Right. | 2 |
fomc | 2,007 | To be eligible to bid in the auction, as it's designed, you have to be eligible to borrow from a Federal Reserve Bank at the primary credit facility. Now, if you are an institution that is migrating across states of the world and ratings in the midst of this four-week program, then we'd face some awkward decision in th... | 329 |
fomc | 2,007 | Governor Mishkin had a question. | 7 |
fomc | 2,007 | Actually, great minds think alike. The first question you asked was exactly the one I was going to ask. | 22 |
fomc | 2,007 | Okay. President Fisher. | 5 |
fomc | 2,007 | I have two questions. The degree to which this new Lombard facility's bidding process would avoid the stigma issue is unclear. Could you repeat to me how this deals with the stigma issue? That's my first question, and then I have another one after this. | 52 |
fomc | 2,007 | Well, partly by auctioning credit, so institutions are coming to the Federal Reserve voluntarily and paying a price that is market based. Another point is that the institutions are regarded as generally sound. They have to meet a certain qualification standard to get to the discount window, and we would be taking certa... | 103 |
fomc | 2,007 | I mean, aren't they still saying that they are distressed? | 12 |
fomc | 2,007 | No. No, the economics are better because you have to think about the minimum rate. The minimum rate is the swap rate plus 10 basis points, which is well below one-month LIBOR and well below the one-month term fed funds rate. So there is that room in-between. You could actually criticize a bank for not participating in ... | 85 |
fomc | 2,007 | I'm sure the small banks will. That's what I mean. That's why they're not going to like it. In other words, this is a big institutional facility. | 32 |
fomc | 2,007 | Not necessarily. | 3 |
fomc | 2,007 | Just as long as you need 50 million bucks. | 11 |
fomc | 2,007 | Well, you have to have $63 million, if you're using the ratios you're using, in collateral. So there is that aspect. I understand that's what it was meant to address. My second question derives from the first, and that is, could you give us a little background on the staff's discussion on having tighter standards? I ga... | 119 |
fomc | 2,007 | We did consider imposing a higher standard, something like "well capitalized and well managed"--the financial holding company type standards--and two concerns were raised. One is that it has the same problem that President Rosengren referred to that we have to rely on the exam rating and the capital adequacy determinat... | 203 |
fomc | 2,007 | Thank you. | 3 |
fomc | 2,007 | Other questions? President Hoenig. | 7 |
fomc | 2,007 | Just kind of on this point. There is a description of this as somewhat prequalifying. You have to be available for primary credit. Second, it's temporary. Third, it's in pretty rough times as far as when you're borrowing. I'm not sure you're going to get rid of the stigma problem with this, and you're going to go throu... | 144 |
fomc | 2,007 | Any other questions before we take general comments? Governor Kroszner. | 15 |
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