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

Thank you. Other questions? Well, if there are not any other questions, let me first say that I do want to thank the staff. These innovations did come from the staff members who are on the front lines. President Evans, we really have talked about these, and I know the staff has thought these through. I think that these are constructive ideas. The option idea essentially will allow for a better targeted use of our balance sheet to some short periods that have been particularly stressful, and I think it will give us overall more flexibility to use our balance sheet in the most effective way. So it seems like an innovative way to deal with a particular problem, which is this end-of-quarter issue.

On the 84-day TAF, I know for sure that banks have been asking for a longer term. I have heard it directly myself and have heard a lot about this from the Desk. It is frequently pointed out by the banks that the ECB and the Bank of England have been making effective use of longer-term loans, and in their view that has made the liquidity pressures less severe in those jurisdictions. So I do think it is certainly worth considering the three-month TAF loan. Obviously, as Reserve Bank presidents, you have to administer these; and the first question that comes to your mind is, of course, the greater credit risk. In that respect, I think that taking the existing haircuts plus 33 percent should provide some comfort. Of course, you retain the right always to demand collateral to your satisfaction or to convert the loan to a primary or secondary or overnight loan or to call the loan. So you have always the same protections that you currently have. I suppose it would be, in some sense, a de facto tightening of standards, if you were looking at institutions that would be eligible on a three-month basis. At the same time, to go back to my earlier comment, we don’t have to make a final decision today, but it might be worth considering not putting the overcollateralization requirement on any loan less than, say, 14 or 28 days on the grounds, as President Plosser pointed out, that we don’t want to be seen as taking away something or increasing the cost of funding at a time when we still want to provide these liquidity benefits. So I guess that one option I would raise for consideration is that, if we do the three-month maturity, we use the overcollateralization for loans greater than 28 days. This means that, as a loan maturity comes down—as it comes close to payoff—some collateral could be withdrawn if desired.

I do think these are reasonable extensions. They seem to me to be quite consistent with our earlier practice. I take President Hoenig’s point that we are not in this business indefinitely. We need to be thinking about cutting back. But at the moment, conditions do not seem considerably better, and I don’t think that at this moment we really should be reducing our support to the market. Are there others who would like to comment on any aspect of these proposals—about collateral or about any of the other issues? President Plosser.

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