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

I just want to underscore the points that President Yellen made because extending the term or even just having the term with the TAF really creates a bit more of a burden for us to think about not just primary versus secondary credit but effectively three modes. One is sort of a superprimary credit, where you can borrow at term and now term of 84 days rather than 28 days. This issue came up not only in the San Francisco District but also, as Sandy Pianalto well knows, in the Cleveland District. Then there are the overnight primary credit and the secondary credit. We have to think about how we will apply this in a consistent way throughout the System. Also, although in principle we can pull back exactly as you described, as Janet argued, that can be very dangerous to do. Also, if we do that, sometimes it may have to be revealed publicly on a form 8-K. If there is a significant change in an institution’s liquidity situation and if an institution is in a difficult circumstance, the institution has often made reports publicly about how much liquidity it has. If there is a significant change in our willingness to provide institutions with credit, they may have to report that, and that could be a precipitating event, which puts us in a difficult situation.

So I think we just need to think very carefully about the criteria that we will use for eligibility for long-term borrowing versus overnight borrowing and primary versus secondary borrowing and then not kid ourselves that we may have more options than we think to pull back because it may be very, very difficult to pull back. Obviously, we also have pressure from the FDIC and other regulators not to be the precipitating event.

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