Transcripts of the monetary policymaking body of the Federal Reserve from 2002–2008.

Okay. To answer your first question—Does this commit us for longer?—I don’t really think so. I think the options could be granted only for periods over which the Federal Reserve determines that unusual and exigent conditions exist. So today if we extend that time table to January 30, 2009, then we are opening up the possibility of having options over the September quarter-end and year-end but no longer. In terms of the maturity, the banks have been pushing for this for a long time. If you ask people, “What is your single most popular recommendation that you would like the Fed to do in terms of its suite of liquidity tools?” this is the one that is always at the top of the list.

Now, to your question, “Have things deteriorated?” I would say “yes and no.” They haven’t deteriorated in terms of term funding pressures by looking at the LIBOR–OIS spread being worse. But what has deteriorated is that the markets think these strains are going to last a lot longer—if you look at the one-year-to-two-year-forward LIBOR–OIS spread on a forward basis—and that deterioration has occurred over the last couple of months.

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