Source stringclasses 1
value | Date int64 1.98k 2.01k | Text stringlengths 2 27.1k | Token_count int64 1 5.57k |
|---|---|---|---|
fomc | 1,977 | The RP market itself, I think, is going to be difficult--the federal funds market--for many of them to operate in. But they will make other arrangements, and the question arises, what happens to the money? My own sense of it is that probably most of it will go into the Eurodollar market. That's the big competitor. They... | 250 |
fomc | 1,977 | So there would be some slight pressure on the dollar from possible movements into other currencies. | 17 |
fomc | 1,977 | I think it would be slight, but there would be some. | 13 |
fomc | 1,977 | And you're putting a little more in the Eurodollar market. I think that's quantitatively more important. You are promoting the growth of the Eurodollar market as opposed to domestic markets. | 38 |
fomc | 1,977 | Isn't this function quite well justified, Paul, as part of, in effect, the execution of monetary policy, in that we know instantly what's going on? If it were through commercial bank channels, we would know, but it wouldn't be that perfect information. | 52 |
fomc | 1,977 | It's been my strong impression that our record has not been good in getting information elsewhere. We have always taken the position--and quite often they will ask, "Do you have any objection if we operate in the private market?" And our answer is basically, "No, but we would like to keep informed about what you're doi... | 77 |
fomc | 1,977 | I think that's quite right; we are not well informed about what they're doing in the market. We can make a big issue of this, and maybe we should make an issue--I have in one or two cases, but-- | 46 |
fomc | 1,977 | And yet, you see, I'm concerned about the domestic operations effect. First of all, within the last five weeks, I testified on behalf of the Board's support on this Treasury investment process, emphasizing the fact that it was very difficult for us to have to deal with all these Treasury balances moving in and out and ... | 250 |
fomc | 1,977 | To your first question, at least these operations are all in one direction. They don't go up by 9 billion and down 9 billion; they're fairly steady in size, and they are predictable. | 40 |
fomc | 1,977 | And they're just repetitive. | 5 |
fomc | 1,977 | And they're repetitive, right. Secondly, we retain the right--if it interferes with open market operations, I'll be the first one to come to this Committee and say that we're going to stop all of this. Because we can't allow that to interfere with open market operations any more than we could let these big swings in th... | 146 |
fomc | 1,977 | They'll still go ahead and do it in some form or another, whether or not we're the intermediaries. | 22 |
fomc | 1,977 | At least that will get the money out of our accounts. | 12 |
fomc | 1,977 | Yeah, get the money out of the account, that's all. | 13 |
fomc | 1,977 | Alan, operationally, do you have any advantages other than the knowledge of flows? | 17 |
fomc | 1,977 | Well, I can recall--remember, go back to the time when we had those huge currency inflows from Germany and the rest of the continent in 1971. Instead of going into the market--well, you know what would have happened, the bill rate would have gone to zero. But the fact that it was coming to us and we could see the dimen... | 114 |
fomc | 1,977 | In general terms, the background of this whole operation in dealing as agent for foreign central banks, whether it's RPs or anything else, I think this grows out of a tradition--and stronger than the tradition in most central banks--the policy that they want this money funneled through central banks, and this is a serv... | 118 |
fomc | 1,977 | This kind of operation doesn't happen in very many countries-- | 11 |
fomc | 1,977 | It's [in] relatively few countries--sterling, the French franc to some extent. It occasionally happens in other countries, but for isolated situations. Of course, we don't have much occasion because we don't keep foreign balances. But when we do, we do use the facilities through the foreign central banks. | 61 |
fomc | 1,977 | What sorts of comments do you get from the market? Is there a sense that they're being done out of a little business? | 25 |
fomc | 1,977 | Well, as you probably know, we have tremendous competition. There are teams from all of the investment banks and all of the large commercial banks that spend all of their time in seminars and going around trying to sell central banks their services. And in recent years there has been a drift away from us. I think we ha... | 106 |
fomc | 1,977 | Is it important to the private sector? | 8 |
fomc | 1,977 | Well, there is some sense of competition, I think that is fair to say. It's not hugely important. Obviously these are not very profitable operations, and turning over short-term money of this sort, you make a little commission on it. It's not-- | 51 |
fomc | 1,977 | If I were a central bank, Paul, and I went into the New York market, I wouldn't be content, would I, to just deal with one bank. I would split it up. | 39 |
fomc | 1,977 | I think most of them do. | 7 |
fomc | 1,977 | And then these things get magnified out of all proportion in terms of what you might call market turmoil. Now, theoretically, we are not concerned with market turmoil; it always settles through. But as a practical matter, aren't we? Isn't this what would happen? | 53 |
fomc | 1,977 | Well, I think it would depend upon the individual banks. Some of them would pick out an agent; some of the ones that aren't too big, I suspect, do it--tend to concentrate in one agent. Some others would scatter it around. I think most of them, even the ones that don't use us much, like to feel that they could use us in... | 168 |
fomc | 1,977 | One thing that has concerned me a bit, it hasn't developed, but it is something that I think we ought to keep our eye out for. And that is, some of these people who are selling these services sell them on the basis that they can arbitrage that account very heavily. And that could be bad for our market if it got too lar... | 71 |
fomc | 1,977 | We have told the market in writing a couple of times that we have no objection to them competing for this business, no objection to a central bank using them. We didn't like the idea of very heavy arbitrage operations, so they are in and out every day for billions of dollars in order to try to get next to three basis p... | 68 |
fomc | 1,977 | And I think this is an appropriate central bank function and we ought to enthusiastically support it. | 19 |
fomc | 1,977 | Could I ask you a question on that? You mentioned consideration of charging. I think we have a potentially explosive issue. It involves a whole group of services to central banks. It involves some benefits to both parties. Is it possible to cost out-- | 50 |
fomc | 1,977 | Yes, I think we can. We do have a charge for handling gold, for example, which we've just revised to reflect current costs. We do charge for a few things, a very few things. | 41 |
fomc | 1,977 | I am assuming that in addition to the courtesy that's involved in this kind of service, that there must be some advantage to the foreign central bank in dealing with the Fed rather than with the market. And the market may stay quiet about this forever, but then may not. | 54 |
fomc | 1,977 | I personally think it's very legitimate to make a charge. I don't know just what that charge should be, but I-- | 24 |
fomc | 1,977 | Balance or actual cash? | 5 |
fomc | 1,977 | Well, I was thinking earlier in terms of balance. Before this issue ever arose, I thought the most straightforward way to do it may be a minimum balance. That may still be true, but now, it's come up in terms of this particular issue, I think you could inject a little commission for RPs. | 63 |
fomc | 1,977 | I'd feel better about it if there were some specified charge so that we couldn't be accused of competing on the basis of no charge, no profit. | 29 |
fomc | 1,977 | Alan, to what extent have you been able to move some of the people out of RPs into regular transactions in bills? | 25 |
fomc | 1,977 | Well, we really haven't made much of an effort except when it was building up to be a problem. But that was quite successful. | 27 |
fomc | 1,977 | It was successful. | 4 |
fomc | 1,977 | Some of the money disappeared, and I don't know where it went, and some of it went into short Treasury bills--through us. I suspect the other went into Europe. | 35 |
fomc | 1,977 | Change of focus for just a moment. As I understand, we've changed our practice so that we are accommodating these RPs currently. | 26 |
fomc | 1,977 | Well, changed in the sense that we have stopped doing any of them in the market. | 18 |
fomc | 1,977 | We are offset through the open market. | 8 |
fomc | 1,977 | If we were to continue to do that, is there a compelling need to go to the IRS for the ruling itself, or can we just let it ride and continue to accommodate these types of transactions? | 40 |
fomc | 1,977 | Well, we could, but the issue having been raised, and raised in very plain form by this IRS ruling--and in the light of the consultations with the Treasury, and then in turn the Treasury with the IRS, and the IRS saying it looks okay but we really want you to have a ruling--I think we ought to have a ruling. And that, ... | 108 |
fomc | 1,977 | The Treasury has promised very strong support on this. | 10 |
fomc | 1,977 | Would the ruling block out the idea of the central bank applying for exemption? | 15 |
fomc | 1,977 | No. Well, I don't think any of them would without the ruling. With the ruling they wouldn't have any incentive. But if they had another reason to apply, for other types of transactions, for instance--if they wanted to do an RP in the market, where you don't have this governmental instrumentality interjected, they'd hav... | 71 |
fomc | 1,977 | Well, if they did, then we could still work through the market. | 15 |
fomc | 1,977 | If they got a ruling, we wouldn't need the ruling for that particular central bank. | 17 |
fomc | 1,977 | One hundred and four central banks going to the IRS for a ruling. | 14 |
fomc | 1,977 | There are some central banks we know will fail in getting the ruling because they have some element of private ownership in them. | 24 |
fomc | 1,977 | [Unintelligible] does, doesn't it? | 11 |
fomc | 1,977 | No. Venezuela did--Venezuela is our big problem, historically. Venezuela passed a law to eliminate their private holding, but during most of this period they had some private holding. So they do not have available to them the defense that they are a government institution. We don't know about all the [central] banks--i... | 94 |
fomc | 1,977 | The major [central] banks would be government owned, I am sure. | 15 |
fomc | 1,977 | Well, some major banks do have private ownership. The Bank of Belgium just comes to mind. But they are exempt by treaty. And there are several things that cut across here. The Swiss have private ownership and are exempt by treaty; fully exempt, too. | 52 |
fomc | 1,977 | The Federal Reserve could not get a ruling. | 9 |
fomc | 1,977 | The Federal Reserve could not get a ruling, that is right. We are a governmental instrumentality under the IRS, but we are not a government. | 30 |
fomc | 1,977 | I was thinking in terms of the volume you do. Your volume would be largely with government-owned central banks. | 22 |
fomc | 1,977 | Except Venezuela is big, and I'm not sure--we think they are government owned now, [or] they will shortly become, but they may still be in some transition state. The deadline of the law saying that they are [completely] government owned is past, but we understand that not all the private owners have coughed up their st... | 82 |
fomc | 1,977 | Paul, carry this one step further. If we do, indeed, get a satisfactory ruling, that essentially forces all central banks to move through us. | 30 |
fomc | 1,977 | No, well, no more than they are now. Well, I just don't know the extent to which they are now doing RPs in the market, assuming they're exempt. There is probably some of that. But we don't know how much. Certainly when this [recent IRS] ruling comes to their attention and is fully analyzed, to the extent they are doing... | 78 |
fomc | 1,977 | That's right, they will come to us, so we will essentially force them all into the Federal Reserve because the uncertainty-- | 24 |
fomc | 1,977 | Our impression is, and I think it is mostly an impression, that they do a lot of this with American banks, but the American banks book it in the Bahamas, basically. I mean they move it offshore, for this reason. | 47 |
fomc | 1,977 | And that could still go ahead. | 7 |
fomc | 1,977 | And that still goes ahead. And that's what they have to do with all of it--they have to get out of the RP vehicle. There may be other vehicles for doing it in the domestic market. But that's why I think the bulk of it will go into the Eurodollar market. | 59 |
fomc | 1,977 | Paul, I might add that a great deal of the countries, the smaller LDCs who have money, come in for a very short time, and they don't add much to the size of the operation--but [it's] extremely useful for them in trying to manage a fairly small portfolio of dollar assets. | 62 |
fomc | 1,977 | If we are very useful to them, then wouldn't they be willing to go and seek certification? | 19 |
fomc | 1,977 | Some of them might. I can't predict that. I would just suspect that it's not going to be important to most of them to want to horse around with the IRS in the United States, which raises a question about their other income from the United States if they didn't get the ruling. Somebody more legally informed than I can p... | 201 |
fomc | 1,977 | I'm looking at this as a measure, you know, of the eagerness of the central banks to have this facility and the importance of it to them. And the result of the test is that it's not all that important; they are not willing to run that risk. | 55 |
fomc | 1,977 | I don't think that anybody could argue that this is absolutely crucial to a central bank's operation--it's a convenience for them. | 25 |
fomc | 1,977 | [Unintelligible] cover RPs in governments. | 12 |
fomc | 1,977 | Pardon me? | 4 |
fomc | 1,977 | Your exemption covers RPs in government [securities]. | 11 |
fomc | 1,977 | The exemption that we are looking for says it doesn't make any difference what obligation we are giving them because all obligations of a governmental instrumentality are exempt. | 30 |
fomc | 1,977 | Yes, but your present [unintelligible] this exemption covers government[s] only. | 19 |
fomc | 1,977 | No, anybody's-- | 5 |
fomc | 1,977 | Any secured government loan. That's the issue isn't it? | 11 |
fomc | 1,977 | The way you say our present exemption--let me make sure. | 13 |
fomc | 1,977 | You have the authority to provide certification. | 8 |
fomc | 1,977 | Yes, that's just for government securities, or deposits, I think. | 14 |
fomc | 1,977 | Well, my question is, how much of these RPs are covered on the government-- | 18 |
fomc | 1,977 | None, no. Because that is what the ruling was. They said these are not government securities, these are loans. That's the problem. | 28 |
fomc | 1,977 | The whole legal situation rather confuses me, I must confess. Because for open market operations these are purchase and sales of securities, and that's the legal interpretation. It's the IRS interpretation, I think, that could be challenged, but I am not a lawyer. Because when we buy securities on RPs, we take delivery... | 119 |
fomc | 1,977 | Under the Federal Reserve Act these are still purchases and sales as far as we are concerned. Under the Internal Revenue Code they say they are loans. | 29 |
fomc | 1,977 | The exemption you seek, then, is just the RP exemption. | 13 |
fomc | 1,977 | That's all. Well, the exemption we seek is just to say that we are a governmental instrumentality. I think a ruling that we are a government instrumentality, which then permits us to make what we call RPs and what the IRS calls loans. We want a declaration that we are a governmental instrumentality. Because then the la... | 81 |
fomc | 1,977 | And that would have to be the Fed of New York. | 12 |
fomc | 1,977 | No, the System Open Market [Account]. | 9 |
fomc | 1,977 | No. That depends on which alternative you take. Whether it's the Fed in New York or the System Open Market Account. | 24 |
fomc | 1,977 | It's clearer, I think, for the System Open Market Account, but then I am bothered at doing things in the System Open Market Account that aren't called for as a monetary policy action. | 37 |
fomc | 1,977 | I defer to the lawyers. My understanding is that it doesn't make any difference to the lawyers whether it's the Federal Reserve Bank in New York or the System Open Market Account. So I don't think legally it makes any difference whether it's New York or the System account. | 52 |
fomc | 1,977 | Well, I expressed earlier a preference for alternative 2 if you want to debate that, but I didn't think you wanted to debate all these alternatives. Incidentally, SAMA [Saudi Arabia Monetary Authority] didn't apply for the exemption for any reason connected with this transaction at all. It applied for an exemption some... | 123 |
fomc | 1,977 | One of the reasons, I think, [other central banks] will be cautious about getting a ruling is there will still be some question about [whether] certain operations are a business in the United States, in which case they wouldn't be exempt. Or whether it's a passive investment of some sort, so there are all these complic... | 168 |
fomc | 1,977 | It's understood that if we do this, you'll impose a charge of some for-- | 16 |
fomc | 1,977 | Well, that's an additional question. I'm happy to do it under that arrangement. Because I think we should anyway. If the Committee wants to issue that sentiment, I think that's appropriate, too. | 39 |
fomc | 1,977 | I think we ought to have a report back to the Committee on the pros and cons and the way in which changes are going to be implemented. We have had enough problems with this pricing business. | 39 |
fomc | 1,977 | Let me propose specifically, and maybe we can have a showing of hands. The Committee is in agreement that we go to the IRS for a ruling in contemplation that one of the three approaches will be adopted assuming a favorable ruling, and that we will come back to the Committee with a proposal on changes and an analysis th... | 64 |
fomc | 1,977 | And selection of which of the three. | 8 |
Subsets and Splits
No community queries yet
The top public SQL queries from the community will appear here once available.