Download The Federal Reserve extended through October 30, 2009, its

FIRMA
April 26-30, 2009
Donna M. Fay
Federal Reserve Bank
Of Atlanta
Disclaimer
Any views I express are my own and not
those of the Federal Reserve Bank of
Atlanta, my colleagues in the Federal
Reserve System or the Board of
Governors
Outline
• Purpose of Federal Reserve
• Recent Federal Reserve actions relevant
to Fiduciaries
• Fiduciary Supervisory Topics
• Relevant SR Letters
• Questions
Purpose
The purpose of the Federal Reserve is to foster
a flow of credit and money that will facilitate
orderly economic growth, a stable dollar, and
long-run balance in our international payments
The Federal Reserve System Purpose and Function 1963
Mission
Today, the Federal Reserve's duties fall into four general areas:
• conducting the nation's monetary policy by influencing the monetary
and credit conditions in the economy in pursuit of maximum
employment, stable prices, and moderate long-term interest rates
• supervising and regulating banking institutions to ensure the safety
and soundness of the nation's banking and financial system and to
protect the credit rights of consumers
• maintaining the stability of the financial system and containing
systemic risk that may arise in financial markets
• providing financial services to depository institutions, the U.S.
government, and foreign official institutions, including playing a
major role in operating the nation's payments system
Total Assets of
Federal Reserve
Selected Assets of
Federal Reserve
Credit Extended
Federal Reserve
Select Liabilities of
Federal Reserve
Discount Window
•
•
•
•
•
Section 10B of Federal Reserve Act
Primary Credit
Secondary Credit
Seasonal Credit
Term Auction Facility (TAF)
TAF
• December 17, 2007 Auction
– $20 billion auction
– $61 billion propositions submitted
• March 23, 2009 Auction
– $150 billion auction
– $101 billion propositions submitted
Liquidity Facilities
The Federal Reserve extended through
October 30, 2009, its existing liquidity
programs that were scheduled to expire on
April 30, 2009. The Board of Governors
and the Federal Open Market Committee
(FOMC) took these actions in light of
continuing substantial strains in many
financial markets.
February 3, 2009 Press Release
Asset Backed Commercial Paper (ABCP) Money
Market Mutual Fund (MMMF) Liquidity Facility
(AMLF or "the Facility")
• The Federal Reserve Board on Friday January 30, 2009, announced
two final rules pertaining to the Asset-Backed Commercial Paper
Money Market Fund Liquidity Facility (AMLF), which extends loans
to banking organizations to finance their purchases of high-quality
asset-backed commercial paper from money market mutual funds.
• The first rule provides a temporary limited exception from the
Board's leverage and risk-based capital rules for bank holding
companies and state member banks. The second rule provides a
temporary limited exception from sections 23A and 23B of the
Federal Reserve Act, which establish certain restrictions on and
requirements for transactions between a bank and its affiliates.
• The two final rules, originally approved as interim final rules on
September 19, 2008, will facilitate participation by depository
institutions and bank holding companies as intermediaries between
the AMLF and money market mutual funds. These exceptions are
subject to various conditions to promote safety and soundness.
Asset Backed Commercial Paper (ABCP) Money
Market Mutual Fund (MMMF) Liquidity Facility
(AMLF or "the Facility")
•
borrow funds from the AMLF to fund the purchase of eligible ABCP from a
MMMF under certain conditions
•
•
•
•
•
The AMLF program is authorized under Section 13(3) of the Federal
Reserve Act
borrow against ABCP purchased from an MMMF on or after September 19,
2008
Eligible borrower can purchase paper from a proprietary fund
borrower can buy from a qualified fund ABCP that was issued by a program
for which the borrower serves as the sponsor and pledge that paper under
this facility
Because bank holding companies and state member banks will bear no
credit or market risk in their holdings of ABCP under this facility, the
holdings will not be assessed any regulatory capital charge.
– Risk transfers to FRB Boston upon completion of certain steps
Parent Company
Impact
• Over $20 billion in support from parent company
• Purchases of ARS from clients or funds
• Capital support agreements (CSA) for MMMFs
–
–
–
–
Liquidity Protected Preferred shares
Parent company letters of credit
Parent company notes
CSAs being extended to end of 2009
Fiduciary Supervisory
Topics
•
•
•
•
Asset/Investment Management
Securities Lending
Corporate Trust
Push-out Provisions and Regulation R
Compliance
• Counterparty Risk
• Elevate nonbank risk to parent
• Engage functional regulators
Asset/Investment
Management
• Portfolio management, investment policies
and limits, client communications and
disclosures
• Strategic decisions
• Evaluate liquidity stress of portfolios
• Effective investment review process
• Robust due diligence practices
Securities
Lending
• Monitor progress of mergers
• Commingled securities lending cash
reinvestment pools
– Valuation issues
• Liability to mutual funds or
common/collective funds as investors
– Legal and reputational risks of losses
• Audit restrictions of client withdrawals
Corporate Trust
• Revenue impact of decreasing business
• Issuer defaults and deteriorating financial
condition
• KRIs to identify operational stresses
• Evaluate extent of credit provided to
issuers
• DTCC processing changes
Other Supervisory
Topics
• Pushout and Regulation R
• Counterparty risk
– Custodians and subcustodians
– Clearing firms
– Brokers
– Strategic partnerships
• Communicate nonbank risk to parent
SR Letters
• 08-09 Consolidated Supervision of Bank Holding Companies and
the Combined U.S. Operations of Foreign Banking Organizations
• 08-08 Compliance Risk Management Programs and Oversight at
Large Banking Organizations with Complex Compliance Profiles
• 08-07 Interagency Examination Procedures for the Identity Theft
Red Flags and Other Regulations under the Fair Credit Reporting
Act
• 07-15 Release of the Revised Federal Financial Institutions
Examination Council Bank Secrecy Act/Anti-Money Laundering
Examination Manual
• 99-7 Supervisory Guidance Regarding the Investment of Fiduciary
Assets in Mutual Funds and Potential Conflicts of Interest
Questions?
References
http://www.federalreserve.gov/aboutthefed/default.htm
http://www.frbdiscountwindow.org/mmmf.cfm?hdrID=14#f1
http://www.clevelandfed.org/research/data/credit_easing/index.cfm