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fomc | 2,008 | Questions for Bill? President Rosengren. | 9 |
fomc | 2,008 | Just an amplification on the State Street situation. My understanding is that no money actually went out. There was $20 billion in withdrawals that came in late in the day. They had a $71/2 billion credit line. State Street had enough collateral to do $71/2 billion. They were unwilling to do $20 billion. They asked us ... | 175 |
fomc | 2,008 | President Plosser. | 5 |
fomc | 2,008 | Just a question on the PDCF, about the expansion of the collateral base. You said there was $42 billion, $28 billion of it was Lehman. Do we know what kind of collateral Lehman posted? Did they actually make use of the expanded options or not? What was the nature of it, do you know? | 67 |
fomc | 2,008 | That was not actually even known until late yesterday evening. It takes a while for us to get the reports from the clearing bank to be able to go through and tell you what the collateral is. In terms of the Lehman collateral, they are not allowed to broaden the PDCF--they are basically bringing us the stuff they had on... | 192 |
fomc | 2,008 | President Lacker. | 4 |
fomc | 2,008 | Thank you, Mr. Chairman. The higher collateral requirement, is that just Lehman? | 18 |
fomc | 2,008 | At this time, I believe that is right. | 10 |
fomc | 2,008 | Okay. I know there was a lot of concern going in yesterday about the tri-party repo market, and I envisioned two scenarios and anything in between them. One is tri-party lenders pulling away from particular names and moving their funds to other names. Another, at the other extreme, would be tri-party repo lenders pulli... | 181 |
fomc | 2,008 | Well, I guess the first thing I would say is that you are absolutely right. If investors pull away, they have to take their money somewhere. It doesn't disappear. I think that the Primary Dealer Credit Facility has been shown to be pretty significant in providing support to this market. If you look at what happened to ... | 234 |
fomc | 2,008 | So, if I can just follow up, my understanding is that tri-party repos are exempt from the automatic stay, so it is not filing per se that is the risk. It's the risk that they don't have the cash, right? | 47 |
fomc | 2,008 | Well, I'm not sure about that. I thought that there was an issue about broker-dealer filing. I know that the clearing banks are certainly quite nervous about that eventuality, but I'm not a lawyer. | 42 |
fomc | 2,008 | The repos are exempt from the automatic stay provisions of the bankruptcy code. But if Lehman had gone into SIPA liquidation, they could have been subject to a SIPA stay. | 36 |
fomc | 2,008 | All right. Then a question about the TSLF. Is it this program in which we provide Treasuries? | 24 |
fomc | 2,008 | We give them Treasuries, and they give us other stuff. You know, this will also probably be helpful this week in providing more Treasuries to the market. There was a tremendous amount of Treasury fails yesterday. So this mechanism does two things. It takes illiquid collateral from the dealers, and it also supplies a lo... | 87 |
fomc | 2,008 | Other questions? Bill, would you be able to talk a bit about the need for swaps? | 19 |
fomc | 2,008 | I have just sketchy details based on a phone call, so this may not be quite right. But my understanding is that this morning Norway put in place a facility by which they are going to offer their banks dollars, up to $5 billion, on a one-week term--sort of an open facility. The fact that Norway is doing this suggests th... | 303 |
fomc | 2,008 | You had a two-hander, Governor Kohn? | 11 |
fomc | 2,008 | Just to note that we did have a discussion of foreign exchange swaps in the Committee on the Global Financial System a week and a half ago, and the general consensus was that these had been very handy in damping pressures in money markets--dollar funding markets in particular--when the foreign exchange swap market isn'... | 130 |
fomc | 2,008 | The Bank of Japan has requested at the staff level to set up a facility that would be on the shelf for year-end because the Japanese are quite worried that their banks are going to face a dollar funding problem at year-end. Now, this preceded the recent crisis, so even before this last week they were concerned that the... | 111 |
fomc | 2,008 | Bill, if we were going to take action today, what would you recommend in terms of counterparties? Should we say an unlimited amount? Should we specify an amount? Can we leave the time open? What are your recommendations on all those dimensions? | 50 |
fomc | 2,008 | Certainly you want to make it pretty broad. You want to make it to the Bank of England, Switzerland, the ECB, the Bank of Japan, potentially Canada. I would leave it to their discretion if they would like to participate. I would make the offer to them; and if they want to participate, then we should be willing to do th... | 183 |
fomc | 2,008 | President Lacker. | 4 |
fomc | 2,008 | Remind me again how big the European system of central banks' own outright holdings of dollar balances are. | 21 |
fomc | 2,008 | European banks? | 3 |
fomc | 2,008 | Yes. | 2 |
fomc | 2,008 | I don't know. | 4 |
fomc | 2,008 | Central banks. | 3 |
fomc | 2,008 | Do you mean in terms of their dollar foreign exchange reserves? | 12 |
fomc | 2,008 | Right. The ECB--they all have their own dollar reserves. | 13 |
fomc | 2,008 | I don't have the numbers. | 6 |
fomc | 2,008 | I believe that number is about $180 billion of dollar reserves in the euro system. The ECB itself has control of only a fraction of that. | 29 |
fomc | 2,008 | These are held at individual national central banks, so our swap lines to them aren't approaching that level yet, right? | 23 |
fomc | 2,008 | No. | 2 |
fomc | 2,008 | Note here a sense of discomfort with our lending them dollars that they already have and so our serving as a substitute for their mobilizing their own dollar reserves for this purpose. Obviously, the demand could swamp their own reserves, and at that point I would feel differently about this. But my understanding is th... | 117 |
fomc | 2,008 | Whether it's sensible or not, the ECB has made a pretty strong distinction with us between their foreign exchange reserves and their dollars that they use in these operations. They really want to keep those segregated. They want, to some extent, to represent this as being a collaborative effort with the United States a... | 130 |
fomc | 2,008 | Mr. Chairman, I was going to say that we had this discussion before. We did approve the swap lines. I wonder if you could just summarize for us what you view as the downside risk to our doing this. | 44 |
fomc | 2,008 | Well, I don't think there are any significant downside risks. There are operational issues that Bill Dudley and his team have to worry about. If we extend funds to the Europeans, which they then relay to their banks, it affects our reserve positions and affects the management of the federal funds rate and requires ster... | 208 |
fomc | 2,008 | In principle, we could talk to the ECB and other central banks about having the rate on these swap lines be at a slight penalty relative to normal times to try to mitigate the potential reserve impact. I mean, it doesn't have to be at 2 percent or 21/4 percent for overnight funds--it could be somewhat north of that. Bu... | 138 |
fomc | 2,008 | Other comments? All right. Then I'd like to propose that the FOMC delegate to the Foreign Currency Subcommittee an unspecified authority, in terms of amount, to offer swaps to foreign central banks as needed to address liquidity pressures in those other jurisdictions. Those decisions will be made, again, by the Foreign... | 116 |
fomc | 2,008 | Yes. I am in favor of this. I just wonder how the marketplace will look at the open-ended nature of this because typically we have dollar magnitudes associated with swaps. It may all go relatively smoothly; on the other hand, it may raise questions about exactly what we think the issues are here. | 61 |
fomc | 2,008 | Well, I think we are going to have discussions with our foreign counterparts to decide what the right strategy is. I think right now it is better to have it open ended. | 35 |
fomc | 2,008 | That's fine. | 3 |
fomc | 2,008 | Why don't we have discussions with our counterparties--we won't announce anything today, I would assume? | 20 |
fomc | 2,008 | No, I think they have to take it up the chain of command, just as we do here. So it's going to take probably a day. | 30 |
fomc | 2,008 | This would come out in the minutes for this meeting. | 11 |
fomc | 2,008 | Right. We'll announce something. | 6 |
fomc | 2,008 | But I assume there will be an announcement at some point. | 12 |
fomc | 2,008 | Of course. When would we announce this measure? | 10 |
fomc | 2,008 | I think it would be after we've had a chance--I mean, I think we have a lot of work to do with our foreign counterparties. This was basically raised to me this morning. | 39 |
fomc | 2,008 | All right. So this is all conditional on agreements and discussions with other counterparties. We will come up with a joint communication announcement strategy. President Plosser. | 33 |
fomc | 2,008 | I just have one clarification. I have no basic objection to this. I wonder whether or not, if the FOMC is going to delegate the decision to this group, it is sort of an open-ended delegation to do this on an ongoing basis. Does it make sense to define a period of time for which this open-ended delegation is appropriate... | 81 |
fomc | 2,008 | Yes. We have authorities extending right now to January 30 for a lot of these facilities, so that would certainly be a reasonable time frame, I think. | 32 |
fomc | 2,008 | Existing facilities go to January 31, is that right? | 12 |
fomc | 2,008 | January 30. | 4 |
fomc | 2,008 | January 30. Would that be acceptable? | 9 |
fomc | 2,008 | Yes. I think it ought to have a termination point so that, if we wanted to renew it, we would be free to do so, but it wouldn't last forever. | 35 |
fomc | 2,008 | Of course. | 3 |
fomc | 2,008 | One more clarification, Mr. Chairman--this is intended for G-10 central banks, to include the ECB. Just to be clear, if somebody asks, this is not to give to central banks of emerging-market economies. | 45 |
fomc | 2,008 | I presume so. | 4 |
fomc | 2,008 | I think we should presume so. If the other were to happen, we would come back to the Committee. | 22 |
fomc | 2,008 | Yes, this is about the major financial centers and the ability of large banks that operate globally to obtain dollar funding. | 23 |
fomc | 2,008 | Okay. So I amend the proposal to terminate on January 30. President Lacker. | 18 |
fomc | 2,008 | Could I hear a little more about the benefits of an open-ended commitment? All of our programs have been capped at a certain size. You said something about "test the limits," and it makes me think of foreign exchange regimes. What kind of scenario do you have in mind? | 56 |
fomc | 2,008 | I think a lot of the programs that we have are actually open ended. The discount window is open ended in the sense that it's limited only by the amount of collateral that the banks post there. The Primary Dealer Credit Facility is open ended in that it is limited only by the size of the tri-party repo system. My point ... | 159 |
fomc | 2,008 | It's not open ended in the sense that it is not an open window that anybody can come to and take. It just gives us the authority to adjust the amount. | 33 |
fomc | 2,008 | So you will set a definite amount? | 8 |
fomc | 2,008 | We will certainly negotiate with the other central banks and tell them what we're doing now. But we want to have the flexibility in case of an emergency to respond, and we also don't want to communicate to the markets somehow that we have a hard limit that is not going to be changed. That would be potentially bad for c... | 65 |
fomc | 2,008 | But we will communicate a program size? | 8 |
fomc | 2,008 | I think that remains to be discussed with our counterparties. I think we need to have discussions about what would be most effective. Would a big size that's fixed in quantity be most effective? Would an open limit be most effective? I think we have to have those discussions. I think the important thing here--and what ... | 108 |
fomc | 2,008 | I think it is mostly a communication issue. Anything else? All right. Do you want to call the roll on this one? | 26 |
fomc | 2,008 | So move. | 3 |
fomc | 2,008 | We need a second. | 5 |
fomc | 2,008 | Second. | 2 |
fomc | 2,008 | All right. Thank you. | 6 |
fomc | 2,008 | Can we read the resolution? | 6 |
fomc | 2,008 | The resolution is to provide to the Foreign Currency Subcommittee the authority to enter into swap agreements with the foreign central banks as needed to address strains in money markets in other jurisdictions. This will be done in cooperation with the Open Market Desk and in consultation with those other central banks... | 111 |
fomc | 2,008 | As actions are taken, presumably you'll circulate the outcomes of these decisions to this Committee in advance of any announcements?. | 22 |
fomc | 2,008 | Of course. All right. Let's take a vote. | 11 |
fomc | 2,008 | Chairman Bernanke Yes First Vice President Cumming Yes Governor Duke Yes President Fisher Yes Governor Kohn Yes Governor Kroszner Yes President Pianalto Yes President Plosser Yes President Stern Yes Governor Warsh Yes | 43 |
fomc | 2,008 | Thank you. Brian, have you circulated the statement? | 11 |
fomc | 2,008 | Yes, Mr. Chairman. Everybody should have it. | 11 |
fomc | 2,008 | Has everyone a copy of that? Good. Before we get started on that, I just want to comment that we may want to say something in the statement about financial conditions, but we'll come back to that later. We need also now a vote to ratify the domestic open market operations. | 58 |
fomc | 2,008 | So move. | 3 |
fomc | 2,008 | Any objections? Okay. Thank you. Let's turn now to the economic situation. Dave Stockton and Nathan Sheets. | 22 |
fomc | 2,008 | Thank you, Mr. Chairman. In response to your request for some economy in our remarks this morning, I'm going to set aside my prepared remarks and just hit some of the highlights here. We did receive a great deal of macroeconomic data since we closed the Greenbook last Wednesday. We didn't seem to get any of it right, b... | 2,333 |
fomc | 2,008 | I also will be very brief in summarizing economic developments abroad. Indeed, I would just like to make six very brief points. The first one is that the incoming data we've received since the last Greenbook for the foreign economies have been extraordinarily soft. Indeed, we've marked down our forecast or projection o... | 730 |
fomc | 2,008 | Thank you. Are there questions for Dave and Nathan? | 11 |
fomc | 2,008 | Could I ask just one question, Mr. Chairman? | 11 |
fomc | 2,008 | President Fisher. | 3 |
fomc | 2,008 | Could you interpret for us the Bank of China's cut in the bank lending rate? | 16 |
fomc | 2,008 | Yes. Yesterday the PBOC cut its main policy rate 27 basis points. I guess they felt that 26 would not have been enough and 28 would have been too much. [Laughter] And 27 was just the right number. I'd say a couple of thoughts were there. One important point is that inflation in China has decelerated significantly. In t... | 218 |
fomc | 2,008 | Thank you. | 3 |
fomc | 2,008 | Three is a lucky number in China. Don was going to tell you that 3 cubed is 27. [Laughter]. | 27 |
fomc | 2,008 | He was also going to wonder, Mr. Chairman, whether we needed to harness the mystical powers. [Laughter] | 24 |
fomc | 2,008 | I think we have good feng shui here. | 10 |
fomc | 2,008 | The science of monetary policy. | 6 |
fomc | 2,008 | Any other deep questions for our colleagues? I'm a little surprised. | 13 |
fomc | 2,008 | We're all trying to be brief, Mr. Chairman. | 11 |
fomc | 2,008 | Everyone has been very brief. I'm shocked. [Laughter] My proposal, which I can be argued out of, is to do one round, if that's acceptable. Please indicate your preliminary view on policy, and you will have another opportunity to refine and extend your views. Is that acceptable with everybody? | 61 |
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