COSO - Western Independent Bankers
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Transcript COSO - Western Independent Bankers
Federal Reserve Bank of San Francisco
The Federal Reserve System
Discount Window
Credit Facilities
Western Independent Bankers
February 11, 2009
Rick Miller
Credit Risk Management
Director
Presentation Outline
Background information
Overview of Discount Window lending programs
Questions
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The Federal Reserve is the
U.S. Central Bank
Serves as the “bank” for
all segments of the
banking system:
commercial banks,
thrifts, and credit
unions
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System Structure - Districts
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Background Information
Statutory and Regulatory Considerations
-Federal Reserve Act
-Monetary Control Act of 1980
-Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA)
-Regulations A and D
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Discount Window
Functions
Act as a safety valve in relieving pressures in
reserve markets
Backup source of liquidity for individual
institutions
Relieve liquidity strains in the banking system
Assure the basic stability of money markets
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Discount Window Credit
Programs
Primary Credit generally available for short
periods of time, usually overnight; flexible with
smaller institutions
Secondary Credit may be available to institutions
not in satisfactory financial condition
Seasonal Credit available to small institutions
with a pronounced seasonal funding need.
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Objectives of Primary &
Secondary Credit Programs
Enhance monetary policy implementation
Reduce stigma in coming to Window
Simplify administration
Improve consistency across Federal Reserve
System
Specifically supported by inter-agency statement
dated July 23, 2003
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Eligibility
Primary Credit
CAMELS 1, 2, or 3
At least adequately capitalized
Supplementary information supports sound
condition
Secondary Credit
Not eligible for Primary Credit
Discretion of the Reserve Bank
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Primary vs. Secondary
Credit
Ol
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Feature
Primary
Rate
Above the FOMC's target for the federal funds rate.
Term
Short-term, usually overnight, but can also be
extended - ordinarily to very small institutions - for up to
a few weeks if such credit cannot be otherwise
obtained in the market on reasonable terms.
Eligibility
Depository institutions in generally sound financial
condition; same as eligibility for daylight credit.
Use
Generally no restrictions. May be used to fund sales of
federal funds.
Administration
Ordinarily no questions asked. Borrowers need not
exhaust other funding sources.
Primary vs. Secondary
Credit
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Feature
Secondary
Rate
Primary credit rate plus 50 basis points
Term
Short-term, usually overnight. Can be extended for a
longer term if such credit would facilitate a timely return
to reliance on market funding or an orderly resolution of
a failing institution, subject to statutory requirements
(FDICIA restrictions).
Eligibility
Depository institutions that do not qualify for primary
credit.
Use
As a backup source of funding on a very short-term
basis, or to facilitate an orderly resolution of serious
financial difficulties.
Administration
Reserve Banks will collect information necessary to
confirm that borrowing is consistent with regulatory
requirements.
Seasonal Borrowing
Program
Established in early 1970s to assist smaller
institutions
Must demonstrate seasonal pattern
Qualifying institutions are typically in agricultural
or tourist areas.
Institutions with deposits over $500 million will not
qualify
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Seasonal Borrowing
Program
Any single loan under the program may be for up
to 30 days
May access the program for 9 months out of a 12
month period
Market rate adjusted every two weeks based on
average Fed funds rate and 90 day CD rate
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Recent Changes to Federal Reserve Liquidity
Provisions
Adjustments to Primary Credit Facility
Term Auction Facility
Primary Dealer Credit Facility
Term Secured Lending Facility
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Primary Credit Program
Adjustments to Primary Credit Facility
- Spread of lending rate to Fed Funds Rate cut to 50
basis points in August 2007 and to 25 basis points in
March 2008
- Loan terms extended to 30 days in August 2007 and
to 90 days in March 2008 and renewable
- From August 2007 to May 2008 Fed Funds Rate and
Discount Rate lowered 8 times
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Term Auction Facility
Established December 12, 2007
Bi-weekly auctions of 28-day Discount Window
credit
Same collateral as for primary credit
Competitive bid process with highest bid rates
being awarded
$150 billion auctioned currently
In place at least until market conditions improve
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Primary Dealer Credit Facility
Established March 16, 2008
A “standing facility” available to primary dealers
Overnight lending
Rate is same as primary credit rate
Eligible collateral includes a broad range of
investment-grade debt securities
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Term Securities Lending Facility
(TSLF)
Established March 11, 2008
Available to primary dealers
Like TAF, TSLF is an auction facility
Auctions relatively illiquid securities in exchange
for Treasury securities
Weekly auctions of security lending operations for
28-day terms
Reserves neutral
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Actions Taken by Board of
Governors
Extended the Primary Dealer Credit Facility and the Term
Securities Lending Facility through January 30, 2009
Introduced auctions of options on $50 billion of draws on the
Term Securities Lending Facility
Introduced an 84-day Term Auction Facility (TAF) loan as a
complement to the 28-day loan
Increased the Fed’s swap line with the European Central Bank
(ECB) to $55 billion from $50 billion
Announced a new collateral requirement for advances of more
than 28-days in maturity (both term-auction credit and term
primary credit but not seasonal credit)
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Access to the Window
Documentation
To borrow from the Discount Window:
Authorizing Resolutions for Borrowers
Letter of Agreement
Official OC-10 Authorization List
Certificate
Collateral
All advances must be secured by acceptable collateral.
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Wide Range of Collateral
Securities
- Treasury
- Agency
- Municipal
- ABS
- Corporate Bonds
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Loans
- Consumer
- Commercial & Industrial
- Commercial Real Estate
- Construction
- Raw Land
Borrower-In-Custody
Program
Pledged loan collateral held on premises
In acceptable financial condition
Identify pledged assets
Provide monthly list of pledged loans
Expect periodic collateral inspections
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Contingency Planning Essential
For All Banking Organizations
Understand funding sources and availability
Have written formal contingency funding
arrangements in place
Test periodically
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The Federal Reserve
System
Ultimate liquidity provider to the market and
individual banking organizations
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Discount Window Website
www.frbdiscountwindow.org
Summary of Credit programs & Detailed Collateral
Information
Federal Reserve Board Press Releases
Frequently Asked Questions (FAQs)
Operating Circular 10
Acceptable Collateral and Margin Table
Links to each Reserve Bank
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Federal Reserve Bank of San Francisco
Contacts
Rick Miller, Director, 415 974 2974
Javier Jerez, Senior Manager, 415 974 2500
David Xu, Manager 415 974 2218
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