Title: The Legal Position of the Central Bank The Case of the Federal Reserve Bank of New York
1The Legal Position of the Central BankThe Case
of the Federal Reserve Bank of New York
- Thomas C. Baxter, Jr.
- General Counsel
- Federal Reserve Bank of New York
January 19, 2009 London School of Economics
Political Science
2Timeline
- August 9, 2007
- BNP Paribas freezes redemptions for three
investment funds - ECB injects 95 billion into the interbank market
- August 17, 2007
- Federal Reserve announces Term Discount Window
Program - December 12, 2007
- Federal Reserve announces Term Auction Facility
- Federal Reserve announces Reciprocal Currency
Arrangements - March 11, 2008
- Federal Reserve announces Term Securities Lending
Facility - March 14, 2008
- Federal Reserve lends 10-15 billion to JPMorgan
Chase to lend to Bear Stearns - March 16, 2008
- JPMorgan Chase acquires Bear Stearns
3Timeline (continued)
- March 17, 2008
- Federal Reserve opens Primary Dealer Credit
Facility - September 7, 2008
- United States bails out Fannie Mae and Freddie
Mac - September 14, 2008
- Bank of America buys Merrill Lynch
- September 15, 2008
- Lehman Bros. declares bankruptcy
- September 16, 2008
- Federal Reserve lends AIG 85 billion
4Timeline (continued)
- September 19, 2008
- Federal Reserve announces ABCP Money Market Fund
Liquidity Facility - September 25, 2008
- Washington Mutual seized
- October 27, 2008
- Federal Reserve opens Commercial Paper Funding
Facility - November 24, 2008
- Federal Reserve announces Money Market Investing
Funding Facility - November 26, 2008
- Federal Reserve announces Term Asset-Backed
Securities Loan Facility - February 2009
- Term Asset-Backed Securities Loan Facility
expected to go live
5Section 13(3) of the Federal Reserve Act
- In unusual and exigent circumstances, the Board
of Governors of the Federal Reserve System, by
the affirmative vote of not less than five
members, may authorize any Federal reserve bank,
during such periods as the said board may
determine, at rates established in accordance
with the provisions of Section 14, subdivision
(d), of this Act, to discount for any individual,
partnership, or corporation, notes drafts, and
bills of exchange when such notes, drafts, and
bills of exchange are indorsed or otherwise
secured to the satisfaction of the Federal
reserve bank Provided, That before discounting
any such note, draft, or bill of exchange for an
individual, partnership, or corporation the
Federal reserve bank shall obtain evidence that
such individual, partnership, or corporation is
unable to secure adequate credit accommodations
from other banking institutions. All such
discounts for individuals, partnerships, or
corporations shall be subject to such
limitations, restrictions, and regulations as the
Board of Governors of the Federal Reserve System
may prescribe.
6Master Transaction Diagram
Maiden Lane LLC
BlackRock Investment Manager
State Street Custodian/Administrator/ Collateral
Agent
FRBNY
JPMorgan
Maiden Lane LLC
29.0 bn
Fed Senior Tranche A Loan up to
29.0 bn
TRS
Derivatives
P I on Tranche A Loan Residual
P I on Tranche B Loan
JPMorgan Tranche B Loan1.0 bn
1.0 bn
30 bn
30 bn market value of assets and hedges
Derivatives with Various Counterparties
Residential Loans
Cash Securities
Commercial Loans
7Statement of Condition of All Federal Reserve
BanksDecember 31, 2008 ( billions)