Transcript The Topology of the Federal Funds Market

Understanding the Response of the
Federal Reserve to the Recent
Financial Crisis
Sandy Krieger
April 14, 2010
This presentation presents preliminary findings and is being distributed to stimulate discussion and elicit comments. The views
expressed in the presentation are those of the author and are not necessarily reflective of views at the Federal Reserve
Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author.
Motivation

All of Fed’s actions were directed at protecting the American
people from a more severe downturn.

Fed’s goal was to foster access to credit by businesses and
individuals to met critical needs and keep the economy moving
during a very critical period.
2
Federal Reserve’s Responsibilities

Conduct the nation’s monetary policy
 Influence
monetary and credit conditions in the economy in
pursuit of maximum employment, stable prices and moderate
long-term interest rates

Supervise and regulate banking institutions
 Ensure
safety and soundness of the nation’s banking and
financial system
 Protect the credit rights of consumers

Maintain the stability of the financial system and contain
systemic risk that may arise in financial markets

Provide financial services to depository institutions, the US
governments and foreign official institutions, including playing a
role in operating the nation’s payment system
3
Federal Reserve Governance

The Fed’s authority and structure is defined by Congress
(Federal Reserve Act)

Fed structure
 Board

of Governors in Washington, DC
7 Governors, appointed by Congress
- Responsible for bank supervisory and payment system risk policies, approving
discount rate change requests
 12
Regional Reserve Banks

Independent corporations
 Responsible for the loans to Dis in their districts
- “Secured to their satisfaction”

Monetary Policy: FOMC
 The
Governors
 Reserve Bank presidents

5 voting members; 4 on a rotational basis
4
Basic ABCP Conduit Structure
Seller
Cash Collections
Cash Advances
Credit
Enhancement
Provider
Fees
Collateral
Agent
Liquidity
Provider
Credit Support
Secured Assets and Fees
Fees
Liquidity Support
Hedge
ABCP Conduit
Cost of Hedge
Administrator
Fees
Dividends
Hedging
Agent
Owner
Placement Agent
Maturity Payments
Price of ABCP
Issuing
Payment
Agent
Maturity Payments
Price of ABCP
Investor
Source: Moody’s
5
Institutional Composition of Each Sector
(trillions of dollars)
$25.00
$20.00
$15.00
$10.00
$5.00
$1989Q4 Inside
1989Q4 Shadow
2009Q4 Inside
depository institutions
insurance companies
pensions
money market funds
other funds
gses
abs issuers
finance companies
reits
broker-dealers
funding corporations
2009Q4 Shadow
Source: Federal Reserve Flow of Funds
6
Funding Sources by Sector Type
$60.80
$1,164.80
$820.60
Insured Deposits
Wholesale Deposits
$7,319.00
Reserves
Inside institutions benefit from
explicit guarantees and have
access to official sources of
liquidity
Federal Funds and Repo
$13,008.40
Commercial Paper
$1,989.90
Term Debt and ABS
$3,258.60
$4,650.20
Money Fund Shares
Mutual Fund Shares
$618.30
$564.70
Agency Debt and MBS
$7,002.40
Federal Funds and Repo
Shadow institutions do not
benefit from explicit
guarantees and do not have
access to official sources of
liquidity
Commercial Paper
$8,112.70
Term Debt and ABS
7
Credit Market Debt Holdings by Institution Type
(trillions of dollars)
$25.00
$20.00
$15.00
$10.00
$5.00
1980Q1
1981Q2
1982Q3
1983Q4
1985Q1
1986Q2
1987Q3
1988Q4
1990Q1
1991Q2
1992Q3
1993Q4
1995Q1
1996Q2
1997Q3
1998Q4
2000Q1
2001Q2
2002Q3
2003Q4
2005Q1
2006Q2
2007Q3
2008Q4
$-
Inside Institutions
(credit market debt is defined as loans and
fixed-income securities)
Shadow Institutions
Source: Federal Reserve Flow of Funds, Table L1
8
Evolution of the balance sheet through the crisis
0
.5
1
1.5
2
Federal Reserve System Balance Sheet
2007q3
2007q4
2008q1
2008q2
2008q3
2008q4
2009q1
2009q2
2009q3
2009q4
US Treasury Debt
Agency Debt and MBS
Discount Window, TAF, and Swaps
Repo and PDCF
AIG and Maiden Lanes
AMLF, CPFF, and TALF
2010q1
9
Problems addressed by new lending facilities (preview)

Term Auction Facility : illiquid term markets and the stigma that accompanies
discount window borrowing

Swap lines: illiquid money markets that became segmented across countries
and time zones

Primary Dealer Credit Facility: the lack of market-based back-stop credit in repo
markets

Term Securities Lending Facility : illiquid functioning in repo funding markets—
illustrated by abnormal rates and high haircuts

ABCP Money Market Liquidity Facility: illiquidity in money markets (including the
ABCP) that prevented money funds from meeting demands for redemption

Commercial Paper Funding Facility: illiquid functioning in short-term commercial
paper funding markets

Money Market Investor Funding Facility: lack of confidence that money market
investors cannot extend terms of investments beyond overnight and remain
adequately liquid

Term Asset-Backed Securities Loan Facility: lack of available credit due to
frozen ABS market
10
The first phase of the financial crisis
0
.2
.4
.6
.8
Federal Reserve System Balance Sheet
2007q3
2007q4
2008q1
US Treasury Debt
Agency Debt and MBS
Discount Window, TAF, and Swaps
Repo and PDCF
AIG and Maiden Lanes
AMLF, CPFF, and TALF
(August 2007 through February 2008)
11
What happened in August 2007?

Severe pressure on ABCP and term dollar LIBOR markets
 Some
ABCP issuers had subprime exposure
 Investors ran on the entire sector
 Sponsoring banks provided explicit and implicit support
 Need to bring assets on balance sheet pressured term dollar market
12
ABCP Funding of Shadow Banks
Shadow Bank Entities
Assets Types
Liquidity Number
Support of Entities
Amount
$ Billion
Percent
of Total $
Multi-seller
Receivables and loans
Full
98
525
45
Hybrid and Other
Combination
n.a
84
210
18
Securities Arbitrage
Highly-rated long-term ABS
Full
35
148
13
Implicit
40
126
11
Non-Mortgage Single-seller Credit card and auto loans
SIVs
Highly-rated long-term ABS
None
35
84
7
CDO
Highly-rated long-term ABS
Partial
36
47
4
Mortgage Single-seller
Mortgages and MBS
Implicit
11
23
2
339
1163
100
Total
Source: Covitz, Liang, Suarez (2009); June 2007
13
13
SIV Example: Cheyne Finance PLC

10 billion us/euro portfolio managed
by Cheyne Capital Management
(hedge fund)

WAL of assets (liabilities) was 2.9
(0.48) years in August 2007

US exposure of 78% vs 56% for the
Moodys-rated SIV sector

SIV only had $775 million in
committed liquidity (liquidity
facilities/breakable deposits)

Cheyne folded quickly, defaulting
on ABCP in October 2007, and
ultimately its MTN issue.
14
14
Initial Policy Response to Illiquid Term Markets

Lower discount rate and offered term credit at Discount Window

But depository institutions borrowed using cheaper term funding
from the FHLB system

And, limited access of foreign institutions to term dollar funding
meant continued pressure on LIBOR-OIS
15
Why not the Fed (at least not right away)?
All-in-Cost Spread, Discount Window LESS FHLB NY Advance
16
Funding: ABCP, FHLB Debt and FHLB Advances
1,400
$ Billions
1,200
1,000
800
600
400
I
II
III IV
I
2006
Advances
FHLB Debt
II
III IV
2007
I
II
III IV
2008
I
II
III IV
2009
Asset Backed Commercial Paper
17
Policy Response to Illiquid Term Mkts & DW Stigma

Lower discount rate and offered term credit at Discount Window

Introduced Term Auction Funding and FX swaps in December
2007 to address term dollar funding needs of foreign institutions
and stigma associated with DW use
18
Pressure in Term Dollar Markets
… some improvement in late 2007
1-month LIBOR-OIS spread
400
350
ABCP crisis
(basis points)
300
Bear Stearns
250
200
Lehman
150
100
50
0
1/2/2007
1/2/2008
1/2/2009
1/2/2010
19
The second phase of the financial crisis
0
.2
.4
.6
.8
Federal Reserve System Balance Sheet
2008q1
2008q2
2008q3
US Treasury Debt
Agency Debt and MBS
Discount Window, TAF, and Swaps
Repo and PDCF
AIG and Maiden Lanes
AMLF, CPFF, and TALF
(March 2008 through August 2008)
20
What happened in March 2008?

Repo market
 Brokers-dealers
relied heavily on repo funding, but they had
significant residential and commercial exposure on their balance
sheets, which made investor nervous
 Bank-affiliated dealers had indirect access to official liquidity (23A
waivers), but stand-alone brokers had no liquidity backstop, making
them vulnerable

 In

Bear Stearns, Merrill Lynch, Lehman Brothers, Morgan Stanley, Goldman
Sachs
March, repo investors ran on the weakest stand-alone dealer
Policy response (term dollar liquidity for broker-dealers)
 Maiden
Lane LLC - 13(3) loan
 Primary Dealer Credit Facility - 13(3) lending
 Term Securities Lending Facility – 13(3) lending
 Single tranche OMOs
21
Repo market is an important money market for broker-dealers
$Bln
July-09
July-08
July-07
July-06
July-05
Total Repo
July-04
July-03
July-02
Term Repo
July-00
July-99
July-98
July-97
July-96
July-95
July-94
Overnight Repo
July-01
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
22
Primary Dealer Credit Facility

The PDCF provides an alternative source of financing to a dealer
that has difficulty financing a security in the market.

It was necessary to provide such an alternative in the unusual
and exigent circumstances surrounding the near-failure of Bear
Stearns.
23
PDCF usage high after Bear Stearns and Lehman failures
$Mln
160000
140000
Primary Credit
120000
PDCF
100000
80000
60000
40000
20000
Apr-09
Mar-09
Feb-09
Jan-09
Dec-08
Nov-08
Oct-08
Sep-08
Aug-08
Jul-08
Jun-08
May-08
Apr-08
Mar-08
Feb-08
Jan-08
Dec-07
Nov-07
Oct-07
0
24
Term Securities Lending Facility

The TSLF addresses the illiquid functioning in various repo
financing markets, including abnormal rates, wide bid-ask
spreads, and large and increasing haircuts on collateral.

Adds Treasuries to dealers’ portfolios, reducing their scarcity in
the repo market

Reduces the roll-over risk for dealers in their financing of the
alternative assets used as collateral

Format assists in setting the right price for the Treasuries lent

Avoids any reserve management problems
25
High overnight agency and MBS spreads to Treasury
BPS
300
First TSLF operation
250
MBS-TSY
AGY-TSY
200
150
100
50
0
-50
Jan-08
Mar-08 May-08
Source: Bloomberg
Jul-08
Sep-08 Nov-08
Jan-09 Mar-09
26
The Rise and Fall of Shadow Institutions’ Funding
8.0
7.0
Mar 19 2008
Overnight Repo
6.0
Financial CP
Aug 8
2007
5.0
M2
4.0
Dec 28 2009
3.0
2.43
2.0
1.0
0.0
1994
1997
2000
2003
2006
2009
(The vertical axis scaled to 1.0 in 1994)
27
The third phase of the crisis
0
.5
1
1.5
2
Federal Reserve System Balance Sheet
2008q3
2008q4
US Treasury Debt
Agency Debt and MBS
Discount Window, TAF, and Swaps
Repo and PDCF
AIG and Maiden Lanes
AMLF, CPFF, and TALF
(September 2008 through December 2008)
28
What happened - Fall 2008?

Failure (or near failure) of at least eight large financial institutions
in matter of weeks
 Break-down
in Agency debt and MBS markets accelerates demise of
Fannie Mae and Freddie Mac
 Run by repo counterparties pushes Lehman Brothers into bankruptcy,
sending shock waves through repo, money, and term ABS markets

Merrill Lynch sold to Bank of America
 Goldman Sachs and Morgan Stanley become bank holding companies
 Liquidity


crisis pushes AIG to brink of bankruptcy
Large securities lending program which funded non-agency RMBS with
repo counterparties under pressure as the lenders wanted out
Potential downgrade action by rating agency would trigger the need to post
massive amounts of collateral against financial guarantees, which the
company did not have

Run on Money Funds: Reserve Fund breaks the buck

Washington Mutual is closed and Wachovia is taken over
29
Spread: One-Month London Interbank Offered
Rate (LIBOR) to O/N Index Swap (OIS) Rate
June 1, 2007 – October 23, 2009
Basis Points
350
Iceland Financial
System Collapse
(10/9/08)
300
Northern
Rock bailout
(9/12/07)
250
200
150
100
US takeover
GSEs
(9/7/07)
BNP
Paribas
suspends
hedge funds
(8/9/07)
Citigroup
receives $7.5
bn from Abu
Dhabi
(11/29/07)
Bailout of US financial
system (10/3/08)
Reserve Fund breaks
the buck (9/17/08)
Citigroup bailout
(11/24/08)
AIG Bailout
(9/17/08)
Lehman
bankruptcy
(9/15/08)
50
0
1-Jun-07
23-Nov-07
16-May-08
Source: Financial times, Bloomberg, Haver Analytics
7-Nov-08
1-May-09
23-Oct-09
30
30
Asset-Backed Commercial Paper Rate
June 1, 2007 – October 23, 2009
Percent
8
1-Day AA Asset-Backed Commercial Paper Rate
6
4
2
0
2-Jan-07
8-May-07
11-Sep-07
15-Jan-08
20-May-08
23-Sep-08
27-Jan-09
2-Jun-09
6-Oct-09
Source: Federal Reserve Board/Haver Analytics
31
31
Public Sector Responses

GSEs

Conservatorship with keep-well agreement
 UST MBS purchase program
 Limited Fed purchases of Agency debt and MBS

AIG credit facility

Money markets

US Treasury guarantee
 Fed special liquidity programs: AMLF, MMIFF

Large systemically important institutions

TARP Capital Purchase Program
 Citigroup and Bank of America ring-fence transactions
 Term Liquidity Guarantee Program (TLGP)

Commercial Paper markets

Fed liquidity program: Commercial Paper Finance Facility (CPFF)
32
AIG - a $1 Trillion Company

In Sept. 2008, AIG was the largest insurance company in the
world, comprising 223 companies, operating in over 130
countries, and servicing 76 million customers

AIG Commercial Insurance insured over 175,000 entities,
employing over 100 million people in the US, including comercial,
military and other organizations

In the financial markets, AIG was a large issuer of CP and a
mortgage lender and guarantor

AIG FP was a large participant in the market for a wide variety of
derivatives and other financial products
 At
its peak, AIG FP insured assets worth $2.7 trillion across a wide
range of asset classes

ILFC was the largest commercial customer of Boeing (order value
of $12.5Bn), GE, Honeywell, Rockwell International and United
Technologies
33
Potential Consequence of AIG Failure

With a massive surrender of insurance policies resulting from an AIG bankruptcy, there might
have been insufficient capital or liquidity to pay all policyholder claims, and existing AIG
policyholders might have been unable to obtain insurance coverage from other insurance
companies

Based on experience of prior failures of insurance companies significantly smaller than AIG,
the sudden loss of AIG insurance capacity would have seriously disrupted the market,
potentially resulting in a shortage of market capacity and significant price increases for
numerous businesses and financial institutions

Seizure of insurance subsidiaries by state regulators would have had an adverse impact on
state guarantee funds, which are unfunded, resulting in assessments against other insurance
companies

An AIG failure could have de-stabilized confidence in other insurers and possibly triggered a
devastating global “run on the industry”

The scope of the failure could have put retirement savings significantly at risk

Rapid unwinding and liquidation of AIG’s many investment portfolios would likely have caused
enormous downward pressure on valuations across all asset classes held by AIG

Default by AIG on its commercial paper could have harmed the money markets (AIG had
issued approximately $20 billion in commercial paper, roughly 4 times as much as Lehman)

More than 1,400 counterparties of AIGFP would have been affected; losses would be suffered
by municipalities, pension plans and investors in $34Bn of purportedly conservative Stable
Value funds, potentially triggering a run on plans with 4400 Bn of assets
34
Policy Objectives with Respect to Lending to AIG

Stabilize markets

Post-Lehman bankruptcy
 Severe financial market distress


Stabilize AIG with sufficient liquidity
Enable AIG to dispose of certain
assets over time

Maximize value
 Avoid undue disruptions to markets
 Reduce risk of loss to Federal
Reserve, the government, the taxpayer

Ultimately, render AIG systemically
“unimportant”
AIG Facts

Operates in more than 130
countries

Over 76 million customers globally

One of the largest domestic
insurance companies – 24 million
customers and 50,000 employees
in the U.S.

Customer base includes
commercial, institutional and
individual customers

AIG Commercial Insurance protects
and insures operations of over
180,000 entities that employ 106
million people in the U.S.

AIG’s domestic insurance
subsidiaries are in 19 states and
Puerto Rico

ILFC is the largest commercial
customer of Boeing (order value of
$12.5 billion), GE, Honeywell,
Rockwell International and United
Technologies
35
Money Funds: The Problem

The Reserve Primary Fund, a Money Market Mutual Fund
(MMMF) “breaks the buck” on September 16, 2008. Heavy
redemptions are related to investor concern about $785MM in
holdings of Lehman Brothers commercial paper.

A “run” on other MMMFs is created. Redemptions for the
week ending September 23, 2008 are $120.5 billion.

MMMFs have difficulty liquidating asset-backed commercial
paper (ABCP), one of their largest holdings, as financial
markets cease normal functioning

Some sponsors provide support for affiliated MMMFs.
36
Understanding the run on money funds
Figure 5: U.S. Money Market Fund Assets by Fund Type
Billions of Dollars
2500
Billions of Dollars
2500
Prime
2000
2000
1500
1500
1000
Government
1000
Tax-free
500
0
Jan-08
500
0
Jul-08
Source: Moneyfundanalyzer
Jan-09
Jul-09
Note: Shaded area September 16 - October 21
37
Money Funds: Solutions

The U.S. Treasury Department opened its Temporary
Guarantee Program for Money Market Funds on
September 29, 2008, which covers share balances as of
September 19, 2008. Termination: September 18, 2009.

The AMLF, managed by the Federal Reserve Bank of
Boston, began operations on September 22, 2008.
Termination: February 1, 2010.

The Money Market Investor Funding Facility (MMIFF),
managed by the Federal Reserve Bank of New York, was
announced on October 21, 2008. Termination: October
30,2009.

The Commercial Paper Funding Facility (CPFF), managed
by the Federal Reserve Bank of New York, began
operations on October 27, 2008. Termination: February1,
2010.
38
AMLF Design
Cash $1,000
FRB
Boston
Cash $1,000
Bank
Non Recourse
Note $1000,
ABCP Pledged
(Borrower)
MMMF
ABCP $1,000
Purchased at
Amortized Cost
Key Design Features:
No loss to MMMFs (purchased at amortized cost)

Potential positive spread for borrowing bank (and essentially risk free)
No recourse to borrower, but credit risk mitigated by SEC restrictions on MMMFs

FRB Boston monitors ratings of pledged ABCP programs and sponsors
FRB Boston
39


39
ABCP Money Market Mutual Fund
Liquidity Facility (AMLF)
AMLF Program Activity
Weekly averages as of 8/13/09
$160
$140
10/8/08 peak borrowing =
$146 billion
Billions of USD
$120
$100
$80
$60
$40
$20
8/13/09
borrowing = $0.1
billion
$0
Source: F.R. Board H.4.1 Release
40
40
Fall 2008 Run on the Prime Funds
Daily Asset Changes in Prime Funds ($millions)
40,000
Treasury Temporary
Guarantee Program
Announced 9/19/08
20,000
and Opened 9/29/08
(20,000)
(60,000)
Lehman
Announces
Bankruptcy
(80,000)
9/15/08
(40,000)
(100,000)
(120,000)
(140,000)
Reserve Fund
Breaks the Buck
CPFF
AMLF
Announced
Announced
10/7/08
MMIFF
Announced
10/21/08
9/19/08
9/16/08
(160,000)
Prime Retail Change
Prime Institutional Change
Source: imoneynet
FRB Boston
41
41
Commercial Paper Funding Facility

Funds the purchase of 3-month unsecured CP or ABCP directly
from eligible issuers
 Restrictions
apply

FRBNY lends to an SPV, which purchases CP from issuers
through primary dealers

Purchase rates
 OIS
+ 300 bps for ABCP
 OIS + 100 bps for CP, with a 100 bps surcharge for non-TLGP issuers
42
CPFF
BPS
BPS
3-Month CP Rates to OIS
400
400
Oct27: CPFF
Launch
300
300
200
200
100
100
0
0
AA Fin - OIS
AA ABCP - OIS
ABCP CPFF Spread
3/29/09
2/27/09
1/28/09
12/29/08
11/29/08
10/30/08
9/30/08
8/31/08
-100
8/1/08
-100
AA Nonfin - OIS
Unsecured CPFF Spread
43
Impact of CPFF on quantities
Figure 8: Total Commercial Paper Outstanding
Billions of Dollars
2000
Percent
50%
CPFF Launch
Total Outstanding
in CPFF
1600
1200
30%
Total Outstanding
in Market
800
400
0
Aug-08
40%
CPFF as %
of Market
20%
10%
0%
Dec-08
Apr-09
Aug-09
Source: Federal Reserve Board of Governors
44
Spread: One-Month London Interbank Offered
Rate (LIBOR) to O/N Index Swap (OIS) Rate
June 1, 2007 – October 23, 2009
Basis Points
350
Iceland Financial
System Collapse
(10/9/08)
300
Northern
Rock bailout
(9/12/07)
250
200
150
100
US takeover
GSEs
(9/7/07)
BNP
Paribas
suspends
hedge funds
(8/9/07)
Citigroup
receives $7.5
bn from Abu
Dhabi
(11/29/07)
Bailout of US financial
system (10/3/08)
Reserve Fund breaks
the buck (9/17/08)
Citigroup bailout
(11/24/08)
AIG Bailout
(9/17/08)
Lehman
bankruptcy
(9/15/08)
50
0
1-Jun-07
23-Nov-07
16-May-08
Source: Financial times, Bloomberg, Haver Analytics
7-Nov-08
1-May-09
23-Oct-09
45
45
Asset-Backed Commercial Paper Rate
June 1, 2007 – October 23, 2009
Percent
8
1-Day AA Asset-Backed Commercial Paper Rate
6
4
2
0
2-Jan-07
8-May-07
11-Sep-07
15-Jan-08
20-May-08
23-Sep-08
27-Jan-09
2-Jun-09
6-Oct-09
Source: Federal Reserve Board/Haver Analytics
46
46
Fourth phase of the financial crisis
0
.5
1
1.5
2
Federal Reserve System Balance Sheet
2009q1
2009q2
2009q3
2009q4
US Treasury Debt
Agency Debt and MBS
Discount Window, TAF, and Swaps
Repo and PDCF
AIG and Maiden Lanes
AMLF, CPFF, and TALF
2010q1
(January 2009 through present)
47
Shut-down in term ABS markets
350
Other
300
Non-U.S. Residential
Mortgages
250
$ Billions
Student Loans
200
Credit Cards
150
Autos
100
Commercial Real
Estate
50
Home Equity
(Subprime)
0
Sep-08
Mar-08
Sep-07
Mar-07
Sep-06
Mar-06
Sep-05
Mar-05
Sep-04
Mar-04
Sep-03
Mar-03
Sep-02
Mar-02
Sep-01
Mar-01
Sep-00
Mar-00
48
Need for a new investor base
49
2009

Implementation of new-issue ABS Term Asset-Backed Securities
Loan Program (TALF) starting in March 2009

Legacy TALF and securities Public Private Investment Program
(PPIP) program announced in March 2009 and implemented over
summer 2009

Implementation of Federal Reserve large scale asset purchases
(LSAP) throughout the year

Implementation of Supervisory Capital Assessment Program
(SCAP) exercise for large depository institutions

Bankruptcy and re-organization of Chrysler and GM with
assistance from UST
50
TALF and New-Issue ABS Spreads
BPS
Student Loan - Private (3 year)
First TALF Subscription
Initial TALF Announcement
1200
Equipment (3 year)
1000
Credit Cards (3 year)
Prime Auto (3 year)
800
600
450
400
200
10/31/09
9/30/09
8/31/09
7/31/09
6/30/09
5/31/09
4/30/09
3/31/09
2/28/09
1/28/09
12/28/08
11/28/08
10/28/08
9/28/08
8/28/08
7/28/08
6/28/08
0
11/30/09
95
75
55
51
TALF and new issue ABS for major asset classes
100000
Auto TALF
Auto
90000
Credit Card TALF
80000
Credit Card
Student Loan TALF
70000
Student Loan
Equpiment TALF
60000
Equipment
50000
40000
30000
20000
10000
2005
2006
2007
2008
2009
Equipment
Student Loan
Credit Card
Auto
Equipment
Student Loan
Credit Card
Auto
Equipment
Student Loan
Credit Card
Auto
Equipment
Student Loan
Credit Card
Auto
Equipment
Student Loan
Credit Card
Auto
Equipment
Student Loan
Credit Card
Auto
0
2010
52
Impact of public sector support for legacy assets
Typical AAA capital structure
Secondary Market Spread Over Swaps
4000
Fixed-rate conduit CMBS
points)
(basis
3000
1000
2000
Super
senior
30%
AM
20%
0
AJ
01jul2008
01jan2009
01jul2009
01jan2010 8%
date
AJ
AM
A4
Super senior
53
TALF: Large Impact but Limited Exposure
160,000
140,000
($ Millions)
120,000
100,000
80,000
New Issue Non-TALF ABS
60,000
TALF Eligible ABS
40,000
New Issue ABS
20,000
-
54
Flight by Foreign Official Accounts from Agency Debt
(billions of dollars)
Change in foreign holdings held in custody by Federal Reserve
(four week cumulative sum)
55
(percent)
Impact of LSAP on mortgage loan coupons
(Freddie Mac Primary Market Mortgage Survey
Conventional Mortgage Rate LESS 10-year UST)
56
What’s Next?
•
Expiration of Special Liquidity Facilities
•
Conclusion of LSAP
•
Portfolio Management
Broader Questions
•
Future of Securitization
•
Improvements in Regulation and Supervision
•
Strengthening Capital Requirements
•
Improving Liquidity
•
Addressing Too-Big-To-Fail
•
Resolution Regime for Systemically Important Institutions
57
Summary

All of Fed’s actions were directed at protecting the American
people from a more severe downturn.

Fed’s goal was to foster access to credit by businesses and
individuals to met critical needs and keep the economy moving
during a very critical period.
58