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

Thank you very much. I am supportive of these initiatives; and with respect to the options, I do think it is very important for us to be thinking about the perceptions of how we are using our balance sheet. Whether or not the reality is there about how much we can expand and deal with, there are a lot of questions and concerns. I think a better focus does make sense. Options were used successfully with respect to Y2K, so there is a precedent for them. They’re not as unusual as some of the other ones, or at least not as new as some of the others. Just being careful about the way we will articulate how we are using our balance sheet and trying to respond practically to questions about the balance sheet stresses make sense.

On the extension of the TAF, we have had some very important and valuable discussions. I had ongoing discussions with President Yellen and certainly President Pianalto, both facing very difficult decisions that highlight some of the issues with the longer-term funding. As I said, one thing that I think will be necessary for us going forward, particularly in extending the TAF, is to think about whether this is adding something. I do support the extension, although I agree with Governor Kohn that it makes sense to think about both the 28-day and the 84-day terms. Private market participants deal with a lot of complexities—one-month, three-month, and six-month LIBOR, and I think they may be able to deal with this. I think it may add something to have both the 28-day and 84-day terms; but there may be operational issues, and I defer to the Desk on that.

I think it raises questions about consistency in thinking about how to deal with now really a third level of comfort that we would need to have in providing credit to institutions. It’s not just secondary versus primary but also primary overnight versus primary term. To that end, I think the proposal that President Rosengren mentioned is important—that we really do need to be thinking about the relationship between these liquidity facilities and our supervisory judgments. To that end I have already asked Brian Madigan and Roger Cole to canvass the heads of supervision and regulation to get a feeling for, and to get a list of institutions, where at least at this stage there may be some differences in our view as an umbrella supervisor from the view of the primary regulator as to the challenges that the institutions are facing. Then either I will or we will have a process by which we will ask each regulator, institution by institution, why there may be differences in assessments and try to understand them. We will also put those regulators on notice that we may be taking a different view and that we, as the lender of last resort, can go in and do our own assessments. We take into account what they provide us, but we are not in any way obligated to follow their particular ratings in making our decisions. If we feel that an institution has more difficulty, we do not have to provide credit to that institution.

Similarly, I have talked with some of the presidents about being proactive in thinking about collateral rather than at the last minute, as was described with respect to IndyMac, having to think about what the value is of the collateral that is provided. We should be doing that proactively, both because we need to know that from our lending point of view and because we can provide that information to the institutions so that they can better manage their liquidity, decide where they wish to pledge their collateral, and understand how they are going to go forward. Also, the other regulators will know more in advance what type of lending may be available.

I do think that we can manage this and that there is potentially some value to extending the term of the TAF. But it raises a number of challenges. Working with President Geithner and President Hoenig on some of these issues, in some sense I have already taken some actions on what President Rosengren has suggested, and I am very happy to hear any other actions that we may need to be taking. I think that we need to be taking those independently of the particular issues here. We can deal with these issues because, of course, it will be up to the individual Reserve Banks to judge whether they want to make the term lending available. If there is concern about that, the Reserve Bank will ultimately make that judgment if it does not wish to provide that credit. Thank you.

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