Federal Reserve Initiatives in Response to the Credit Crisis Via UBS
October 17th, 2008 9:30 pm | by John Jansen |Fed Measures in Addition to Lowering the Funds Rate Since August 2007
August 17 2007: Spread between discount and funds rate cut to 50 bps from 100bps. Max term extended to 30 days from daily.
August 21 2007: Fee charged primary dealers when they borrow from the Securities Lending Program lowered.
August 24 2007: Fed affirmed its policy to accept investment grade asset-backed commercial paper as collateral. Wall Street Journal reported that Fed was “exempting [a bank] from statutory limits on how much its bank unit … can lend to its affiliated
broker dealer”—allowing clients’ assets at a broker/dealer subsidiary to be used as collateral for discount window borrowing.
December 12 2007: New Term Auction Facility (TAF) announced—offering $40 billion in term loans (28- and 35-day)
through an auction process to the depository institutions eligible for discount window borrowing.
December 12 2007: New FX swap lines with the ECB and SNB announced—$24 billion in total.
January 4 2008: TAF expanded to $60 billion from $40 billion.
March 7 2008. TAF expanded to $100 billion. Also, Fed began a series of 28-day repos expected to cumulate to $100 billion.
March 11 2008. A new $200 billion Term Securities Lending Facility (TSLF) announced—lending Treasury securities to
dealers, secured for a term of 28 days by a pledge of other securities, including Treasuries, Federal Agency debt, Agency MBS
and non-Agency AAA-rated private label residential MBS. (Non-Agency collateral must not be on review for downgrade.)
March 11 2008. Increased swap lines with the ECB and SNB—to $36 billion in total from $24 billion.
March 14 2008. Emergency funding for Bear Stearns provided through JP Morgan, via a non-recourse 28-day discount
window loan secured by Bear Stearns collateral.
March 16 2008. Spread between discount and funds rate cut to 25 bps from 50 bps. Maximum term on primary credit (discount
window) loans extended to 90 days from 30 days.
March 16 2008. Primary Credit Dealer Facility (PCDF) established, extending discount-window-like lending to primarydealers—providing overnight loans “in exchange for a specified range of collateral, including all collateral eligible for triparty
repurchase agreements…, as well as all investment-grade corporate securities, municipal securities, mortgage-backed
securities and asset-backed securities for which a price is available.”
May 2 2008. TAF expanded to $150 billion from $100 billion.
May 2 2008. Increased swap lines with the ECB and SNB—to $62 billion in total from $36 billion.
May 2 2008. Allowed collateral for Schedule 2 TSLF auctions expanded to include AAA/Aaa-rated asset-backed securities, in
addition to already eligible residential- and commercial-MBS and agency CMO. Treasury securities, agency securities, and
agency mortgage-backed securities continued to be eligible as collateral in Schedule 1 TSLF auctions.
July 30 2008. PDCF and TSLF extended through January 30, 2009.
July 30 2008. Introduction of auctions of options on $50 billion of draws on the TSLF.
July 30 2008. TAF adjusted to include 84-day as well as 28-day loans. Total program left at $150 billion.
July 30 2008. ECB swap line raised to $55 billion from $50 billion; total with central banks to $67 billion from $62 billion.
September 14 2008. Collateral eligible for PDCF broadened to closely match the types of collateral in tri-party repo systems of
the two major clearing banks (including equities). PDCF collateral had been limited to investment-grade debt securities.
September 14 2008. TSLF expanded to $200 billion in total, from $175 billion. Collateral eligible for Schedule 2 auctions
expanded to all investment-grade debt securities. Previously, only Treasury securities, agency securities, and AAA-rated
mortgage-backed and asset-backed securities could be pledged.
September 14 2008. Temporary (through January 30, 2009) relaxation of rules (section 23A of the Federal Reserve Act) on
depository institutions (banks) providing funding for their nonbank affiliates.
September 16 2008. Lend insurance company AIG up to $85 billion as part of an effective nationalization of the company.
September 18 2008. Central bank swap lines increased to $247 billion from $67 billion, including new BOJ, BOE, and BOC
lines.
September 19 2008. Extension of non-recourse loans at the primary credit rate to US depository institutions and bank holding
companies to finance their purchases of high-quality asset-backed commercial paper (ABCP) from money market mutual funds.
September 19 2008. Expansion of outright purchases by the Fed’s open market desk to include short-term agency debt.
September 21. Approval of applications of Goldman Sachs and Morgan Stanley to become bank holding companies.
September 24. Central bank swap lines increased to $277 billion from $247 billion, including new lines with the Reserve Bank
of Australia, the Sveriges Riksbank, the Danmarks Nationalbank, and the Norges Bank.
9 Responses to “Federal Reserve Initiatives in Response to the Credit Crisis Via UBS”
By Don the libertarian Democrat on Oct 18, 2008 | Reply
What a great resource. Thanks.
By John Jansen on Oct 18, 2008 | Reply
Thank UBS.
By Cornholio on Oct 18, 2008 | Reply
The more they do to try and stop price discovery and the liquidation of mal-investments, the worse this will get, the longer it will last and the more damage to real wealth seeking activities that will occur. The end road here is a total destruction of the currency.
By egc on Oct 18, 2008 | Reply
Thank you UBS. Is the list available as a link on a UBS site?
By John Jansen on Oct 18, 2008 | Reply
i get some research from them by email. I do not know if it is available on the net.
By doc holiday on Oct 18, 2008 | Reply
FYI, this story below, seemed about right, but it fails to add in the $60+ Trillion in derivatives floating around, which is linked to about $50 Trillion in real global GDP. Very confusing!
The Second Great Depression?
http://www.minyanville.com/artic…n/index/a/ 19357
The psychology of this country has begun to change from conspicuous consumption to forced liquidation and saving. The most recent flow of funds data shows that total credit market debt is $51 trillion; our GDP is $14.3 trillion. Debt as a percentage of GDP is now 356%; during the Great Depression, it was 260%. This massive buildup of leverage is just beginning to unwind; the pain will be tremendous when it gains momentum.
The irony of our current economic system is this: If everyone lives within their means, the economy will collapse. Spending money we don’t have is what’s driven our country for the last 3 decades. But if banks won’t lend, credit card companies won’t offer credit, and auto makers stop financing cars, consumers will have no choice but to downsize. The government, by contrast, will continue (and likely accelerate) deficit spending
By Amicus on Oct 19, 2008 | Reply
Despite Chairman appointment under G.O.P. leadership, the Fed has also been somewhat active on the regulatory front (even though one could argue they were pushed into all of these).
Most notably:
# July 14, 2008
Board issues final rule amending home mortgage provisions of Regulation Z (Truth in Lending)
# May 2, 2008
Federal Reserve proposes rules to prohibit unfair practices regarding credit cards and overdraft services
# June 26, 2008
Board proposes rule to implement certain approaches for calculating risk-based capital requirements included in Basel II capital accord
http://www.federalreserve.gov/newsevents/press/bcreg/2008bcreg.htm
By UrbanDigs on Oct 19, 2008 | Reply
and yet, here we are! Aint deflation and deleveraging a bitch!
By troy on Oct 20, 2008 | Reply
also this doesnt take into account aprox $1Trillion of cross-currency swap. (buying dollars in open market is net result)
-for link refer to FR balance sheet.