understanding the response of the federal reserve to the recent financial crisis sandy krieger april...
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![Page 1: Understanding the Response of the Federal Reserve to the Recent Financial Crisis Sandy Krieger April 14, 2010 This presentation presents preliminary findings](https://reader034.vdocuments.us/reader034/viewer/2022052618/5513fe09550346e2488b476a/html5/thumbnails/1.jpg)
Understanding the Response of the Federal Reserve to the Recent
Financial CrisisSandy Krieger
April 14, 2010
This presentation presents preliminary findings and is being distributed to stimulate discussion and elicit comments. The views expressed in the presentation are those of the author and are not necessarily reflective of views at the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author.
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Motivation
All of Fed’s actions were directed at protecting the American people from a more severe downturn.
Fed’s goal was to foster access to credit by businesses and individuals to met critical needs and keep the economy moving during a very critical period.
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Federal Reserve’s Responsibilities
Conduct the nation’s monetary policy Influence monetary and credit conditions in the economy in
pursuit of maximum employment, stable prices and moderate long-term interest rates
Supervise and regulate banking institutions Ensure safety and soundness of the nation’s banking and
financial system Protect the credit rights of consumers
Maintain the stability of the financial system and contain systemic risk that may arise in financial markets
Provide financial services to depository institutions, the US governments and foreign official institutions, including playing a role in operating the nation’s payment system
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Federal Reserve Governance
The Fed’s authority and structure is defined by Congress (Federal Reserve Act)
Fed structure Board of Governors in Washington, DC
7 Governors, appointed by Congress- Responsible for bank supervisory and payment system risk policies, approving
discount rate change requests
12 Regional Reserve Banks Independent corporations Responsible for the loans to Dis in their districts
- “Secured to their satisfaction”
Monetary Policy: FOMC The Governors Reserve Bank presidents
5 voting members; 4 on a rotational basis
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Basic ABCP Conduit Structure
Seller
Credit Enhancement
Provider
Liquidity Provider
ABCP Conduit
Administrator Owner
Issuing Payment
Agent
Investor
Maturity Payments Price of ABCP
Maturity Payments Price of ABCP
Fees Dividends
Fees Credit Support Liquidity Support Fees
Cash Collections Cash Advances
Source: Moody’s
Placement Agent
Collateral Agent
Hedging Agent
Cost of Hedge
HedgeSecured Assets and Fees
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Institutional Composition of Each Sector
Source: Federal Reserve Flow of Funds
$-
$5.00
$10.00
$15.00
$20.00
$25.00
1989Q4 Inside 1989Q4 Shadow 2009Q4 Inside 2009Q4 Shadow
depository institutions insurance companies pensions
money market funds other funds gses
abs issuers finance companies reits
broker-dealers funding corporations
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Funding Sources by Sector Type
Inside institutions benefit from explicit guarantees and have access to official sources of liquidity
Shadow institutions do not benefit from explicit guarantees and do not have access to official sources of liquidity
$3,258.60
$7,002.40
$8,112.70
$564.70
$618.30
$4,650.20 Money Fund Shares
Mutual Fund Shares
Agency Debt and MBS
Federal Funds and Repo
Commercial Paper
Term Debt and ABS
$7,319.00
$1,989.90
$13,008.40
$820.60
$60.80 $1,164.80
Insured Deposits
Wholesale Deposits
Reserves
Federal Funds and Repo
Commercial Paper
Term Debt and ABS
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Credit Market Debt Holdings by Institution Type
Source: Federal Reserve Flow of Funds, Table L1
$-
$5.00
$10.00
$15.00
$20.00
$25.00
1980
Q1
1981
Q2
1982
Q3
1983
Q4
1985
Q1
1986
Q2
1987
Q3
1988
Q4
1990
Q1
1991
Q2
1992
Q3
1993
Q4
1995
Q1
1996
Q2
1997
Q3
1998
Q4
2000
Q1
2001
Q2
2002
Q3
2003
Q4
2005
Q1
2006
Q2
2007
Q3
2008
Q4
Inside Institutions Shadow Institutions
(credit market debt is defined as loans and fixed-income securities)
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Evolution of the balance sheet through the crisis
0.5
11
.52
(tri
llio
ns
of
do
llars
)
2007q3 2007q4 2008q1 2008q2 2008q3 2008q4 2009q1 2009q2 2009q3 2009q4 2010q1
Federal Reserve System Balance Sheet
US Treasury Debt Agency Debt and MBS
Discount Window, TAF, and Swaps Repo and PDCF
AIG and Maiden Lanes AMLF, CPFF, and TALF
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Problems addressed by new lending facilities (preview) Term Auction Facility : illiquid term markets and the stigma that accompanies
discount window borrowing
Swap lines: illiquid money markets that became segmented across countries and time zones
Primary Dealer Credit Facility: the lack of market-based back-stop credit in repo markets
Term Securities Lending Facility : illiquid functioning in repo funding markets—illustrated by abnormal rates and high haircuts
ABCP Money Market Liquidity Facility: illiquidity in money markets (including the ABCP) that prevented money funds from meeting demands for redemption
Commercial Paper Funding Facility: illiquid functioning in short-term commercial paper funding markets
Money Market Investor Funding Facility: lack of confidence that money market investors cannot extend terms of investments beyond overnight and remain adequately liquid
Term Asset-Backed Securities Loan Facility: lack of available credit due to frozen ABS market
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The first phase of the financial crisis
0.2
.4.6
.8(t
rilli
on
s o
f d
olla
rs)
2007q3 2007q4 2008q1
Federal Reserve System Balance Sheet
US Treasury Debt Agency Debt and MBS
Discount Window, TAF, and Swaps Repo and PDCF
AIG and Maiden Lanes AMLF, CPFF, and TALF
(August 2007 through February 2008)
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What happened in August 2007?
Severe pressure on ABCP and term dollar LIBOR markets Some ABCP issuers had subprime exposure Investors ran on the entire sector Sponsoring banks provided explicit and implicit support Need to bring assets on balance sheet pressured term dollar market
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Shadow Bank Entities Assets TypesLiquiditySupport
Numberof Entities
Amount$ Billion
Percentof Total $
Multi-seller Receivables and loans Full 98 525 45
Hybrid and Other Combination n.a 84 210 18
Securities Arbitrage Highly-rated long-term ABS Full 35 148 13
Non-Mortgage Single-seller Credit card and auto loans Implicit 40 126 11
SIVs Highly-rated long-term ABS None 35 84 7
CDO Highly-rated long-term ABS Partial 36 47 4
Mortgage Single-seller Mortgages and MBS Implicit 11 23 2
Total 339 1163 100
ABCP Funding of Shadow Banks
13
Source: Covitz, Liang, Suarez (2009); June 2007
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SIV Example: Cheyne Finance PLC
10 billion us/euro portfolio managed by Cheyne Capital Management (hedge fund)
WAL of assets (liabilities) was 2.9 (0.48) years in August 2007
US exposure of 78% vs 56% for the Moodys-rated SIV sector
SIV only had $775 million in committed liquidity (liquidity facilities/breakable deposits)
Cheyne folded quickly, defaulting on ABCP in October 2007, and ultimately its MTN issue.
14
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Initial Policy Response to Illiquid Term Markets
Lower discount rate and offered term credit at Discount Window
But depository institutions borrowed using cheaper term funding from the FHLB system
And, limited access of foreign institutions to term dollar funding meant continued pressure on LIBOR-OIS
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Why not the Fed (at least not right away)?
All-in-Cost Spread, Discount Window LESS FHLB NY Advance
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Funding: ABCP, FHLB Debt and FHLB Advances
400
600
800
1,000
1,200
1,400
I II III IV I II III IV I II III IV I II III IV
2006 2007 2008 2009
Advances Asset Backed Commercial PaperFHLB Debt
$ B
illio
ns
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Policy Response to Illiquid Term Mkts & DW Stigma
Lower discount rate and offered term credit at Discount Window
Introduced Term Auction Funding and FX swaps in December 2007 to address term dollar funding needs of foreign institutions and stigma associated with DW use
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Pressure in Term Dollar Markets
… some improvement in late 2007
0
50
100
150
200
250
300
350
400
1/2/2007 1/2/2008 1/2/2009 1/2/2010
1-month LIBOR-OIS spread
ABCP crisis
Bear Stearns
Lehman
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The second phase of the financial crisis
0.2
.4.6
.8(t
rilli
on
s o
f d
olla
rs)
2008q1 2008q2 2008q3
Federal Reserve System Balance Sheet
US Treasury Debt Agency Debt and MBS
Discount Window, TAF, and Swaps Repo and PDCF
AIG and Maiden Lanes AMLF, CPFF, and TALF
(March 2008 through August 2008)
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What happened in March 2008?
Repo market Brokers-dealers relied heavily on repo funding, but they had
significant residential and commercial exposure on their balance sheets, which made investor nervous
Bank-affiliated dealers had indirect access to official liquidity (23A waivers), but stand-alone brokers had no liquidity backstop, making them vulnerable Bear Stearns, Merrill Lynch, Lehman Brothers, Morgan Stanley, Goldman
Sachs In March, repo investors ran on the weakest stand-alone dealer
Policy response (term dollar liquidity for broker-dealers) Maiden Lane LLC - 13(3) loan Primary Dealer Credit Facility - 13(3) lending Term Securities Lending Facility – 13(3) lending Single tranche OMOs
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Repo market is an important money market for broker-dealers
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000Ju
ly-9
4
July
-95
July
-96
July
-97
July
-98
July
-99
July
-00
July
-01
July
-02
July
-03
July
-04
July
-05
July
-06
July
-07
July
-08
July
-09
$Bln
Overnight Repo Term Repo Total Repo
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Primary Dealer Credit Facility
The PDCF provides an alternative source of financing to a dealer that has difficulty financing a security in the market.
It was necessary to provide such an alternative in the unusual and exigent circumstances surrounding the near-failure of Bear Stearns.
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PDCF usage high after Bear Stearns and Lehman failures
0
20000
40000
60000
80000
100000
120000
140000
160000O
ct-0
7
No
v-07
Dec
-07
Jan-
08
Feb
-08
Mar
-08
Ap
r-08
May
-08
Jun-
08
Jul-0
8
Aug
-08
Sep
-08
Oct
-08
No
v-08
Dec
-08
Jan-
09
Feb
-09
Mar
-09
Ap
r-09
Primary Credit
PDCF
$Mln
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Term Securities Lending Facility
The TSLF addresses the illiquid functioning in various repo financing markets, including abnormal rates, wide bid-ask spreads, and large and increasing haircuts on collateral.
Adds Treasuries to dealers’ portfolios, reducing their scarcity in the repo market
Reduces the roll-over risk for dealers in their financing of the alternative assets used as collateral
Format assists in setting the right price for the Treasuries lent
Avoids any reserve management problems
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High overnight agency and MBS spreads to Treasury
Source: Bloomberg
-50
0
50
100
150
200
250
300
Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09
MBS-TSY
AGY-TSY
BPS
First TSLF operation
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The Rise and Fall of Shadow Institutions’ Funding
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
1994 1997 2000 2003 2006 2009
Overnight Repo
Financial CP
M2
Mar 19 2008
Dec28 2009
Aug 8 2007
2.43
(The vertical axis scaled to 1.0 in 1994)
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The third phase of the crisis
(September 2008 through December 2008)
0.5
11
.52
(tri
llio
ns
of
do
llars
)
2008q3 2008q4
Federal Reserve System Balance Sheet
US Treasury Debt Agency Debt and MBS
Discount Window, TAF, and Swaps Repo and PDCF
AIG and Maiden Lanes AMLF, CPFF, and TALF
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What happened - Fall 2008?
Failure (or near failure) of at least eight large financial institutions in matter of weeks Break-down in Agency debt and MBS markets accelerates demise of
Fannie Mae and Freddie Mac Run by repo counterparties pushes Lehman Brothers into bankruptcy,
sending shock waves through repo, money, and term ABS markets Merrill Lynch sold to Bank of America Goldman Sachs and Morgan Stanley become bank holding companies
Liquidity crisis pushes AIG to brink of bankruptcy Large securities lending program which funded non-agency RMBS with
repo counterparties under pressure as the lenders wanted out Potential downgrade action by rating agency would trigger the need to post
massive amounts of collateral against financial guarantees, which the company did not have
Run on Money Funds: Reserve Fund breaks the buck
Washington Mutual is closed and Wachovia is taken over
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Spread: One-Month London Interbank Offered Rate (LIBOR) to O/N Index Swap (OIS) Rate
30
June 1, 2007 – October 23, 2009
Source: Financial times, Bloomberg, Haver Analytics
0
50
100
150
200
250
300
350
1-Jun-07 23-Nov-07 16-May-08 7-Nov-08 1-May-09 23-Oct-09
Basis Points
Reserve Fund breaks the buck (9/17/08)
Citigroup bailout (11/24/08)BNP
Paribas suspends hedge funds (8/9/07)
Basis PointsBasis Points
Lehmanbankruptcy (9/15/08)
Iceland Financial System Collapse(10/9/08)
Northern Rock bailout (9/12/07)
AIG Bailout (9/17/08)
US takeover GSEs (9/7/07)
Bailout of US financial system (10/3/08)Citigroup
receives $7.5 bn from Abu Dhabi (11/29/07)
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Asset-Backed Commercial Paper Rate
31
0
2
4
6
8
2-Jan-07 8-May-07 11-Sep-07 15-Jan-08 20-May-08 23-Sep-08 27-Jan-09 2-Jun-09 6-Oct-09
1-Day AA Asset-Backed Commercial Paper Rate
Percent
Source: Federal Reserve Board/Haver Analytics
June 1, 2007 – October 23, 2009
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Public Sector Responses
GSEs Conservatorship with keep-well agreement UST MBS purchase program Limited Fed purchases of Agency debt and MBS
AIG credit facility
Money markets US Treasury guarantee Fed special liquidity programs: AMLF, MMIFF
Large systemically important institutions TARP Capital Purchase Program Citigroup and Bank of America ring-fence transactions Term Liquidity Guarantee Program (TLGP)
Commercial Paper markets Fed liquidity program: Commercial Paper Finance Facility (CPFF)
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AIG - a $1 Trillion Company
In Sept. 2008, AIG was the largest insurance company in the world, comprising 223 companies, operating in over 130 countries, and servicing 76 million customers
AIG Commercial Insurance insured over 175,000 entities, employing over 100 million people in the US, including comercial, military and other organizations
In the financial markets, AIG was a large issuer of CP and a mortgage lender and guarantor
AIG FP was a large participant in the market for a wide variety of derivatives and other financial products At its peak, AIG FP insured assets worth $2.7 trillion across a wide
range of asset classes
ILFC was the largest commercial customer of Boeing (order value of $12.5Bn), GE, Honeywell, Rockwell International and United Technologies
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Potential Consequence of AIG Failure With a massive surrender of insurance policies resulting from an AIG bankruptcy, there might
have been insufficient capital or liquidity to pay all policyholder claims, and existing AIG policyholders might have been unable to obtain insurance coverage from other insurance companies
Based on experience of prior failures of insurance companies significantly smaller than AIG, the sudden loss of AIG insurance capacity would have seriously disrupted the market, potentially resulting in a shortage of market capacity and significant price increases for numerous businesses and financial institutions
Seizure of insurance subsidiaries by state regulators would have had an adverse impact on state guarantee funds, which are unfunded, resulting in assessments against other insurance companies
An AIG failure could have de-stabilized confidence in other insurers and possibly triggered a devastating global “run on the industry”
The scope of the failure could have put retirement savings significantly at risk Rapid unwinding and liquidation of AIG’s many investment portfolios would likely have caused
enormous downward pressure on valuations across all asset classes held by AIG Default by AIG on its commercial paper could have harmed the money markets (AIG had
issued approximately $20 billion in commercial paper, roughly 4 times as much as Lehman) More than 1,400 counterparties of AIGFP would have been affected; losses would be suffered
by municipalities, pension plans and investors in $34Bn of purportedly conservative Stable Value funds, potentially triggering a run on plans with 4400 Bn of assets
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Policy Objectives with Respect to Lending to AIG
Stabilize markets Post-Lehman bankruptcy Severe financial market distress
Stabilize AIG with sufficient liquidity
Enable AIG to dispose of certain assets over time Maximize value Avoid undue disruptions to markets Reduce risk of loss to Federal
Reserve, the government, the taxpayer
Ultimately, render AIG systemically “unimportant”
Operates in more than 130 countries
Over 76 million customers globally
One of the largest domestic insurance companies – 24 million customers and 50,000 employees in the U.S.
Customer base includes commercial, institutional and individual customers
AIG Commercial Insurance protects and insures operations of over 180,000 entities that employ 106 million people in the U.S.
AIG’s domestic insurance subsidiaries are in 19 states and Puerto Rico
ILFC is the largest commercial customer of Boeing (order value of $12.5 billion), GE, Honeywell, Rockwell International and United Technologies
AIG Facts
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Money Funds: The Problem
The Reserve Primary Fund, a Money Market Mutual Fund (MMMF) “breaks the buck” on September 16, 2008. Heavy redemptions are related to investor concern about $785MM in holdings of Lehman Brothers commercial paper.
A “run” on other MMMFs is created. Redemptions for the week ending September 23, 2008 are $120.5 billion.
MMMFs have difficulty liquidating asset-backed commercial paper (ABCP), one of their largest holdings, as financial markets cease normal functioning
Some sponsors provide support for affiliated MMMFs.
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Understanding the run on money funds
0
500
1000
1500
2000
2500
0
500
1000
1500
2000
2500
Jan-08 Jul-08 Jan-09 Jul-09
Government
Billions of Dollars Billions of Dollars
Source: Moneyfundanalyzer Note: Shaded area September 16 - October 21
Prime
Figure 5: U.S. Money Market Fund Assets by Fund Type
Tax-free
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Money Funds: Solutions The U.S. Treasury Department opened its Temporary
Guarantee Program for Money Market Funds on September 29, 2008, which covers share balances as of September 19, 2008. Termination: September 18, 2009.
The AMLF, managed by the Federal Reserve Bank of Boston, began operations on September 22, 2008. Termination: February 1, 2010.
The Money Market Investor Funding Facility (MMIFF), managed by the Federal Reserve Bank of New York, was announced on October 21, 2008. Termination: October 30,2009.
The Commercial Paper Funding Facility (CPFF), managed by the Federal Reserve Bank of New York, began operations on October 27, 2008. Termination: February1, 2010.
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39FRB Boston 39
AMLF Design
Bank
(Borrower)
Cash $1,000
ABCP $1,000
Purchased at
Amortized Cost
FRB Boston MMMF
Cash $1,000
Non Recourse
Note $1000,
ABCP Pledged
Key Design Features: No loss to MMMFs (purchased at amortized cost)
Potential positive spread for borrowing bank (and essentially risk free)No recourse to borrower, but credit risk mitigated by SEC restrictions on MMMFs
FRB Boston monitors ratings of pledged ABCP programs and sponsors
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4040
ABCP Money Market Mutual Fund Liquidity Facility (AMLF)
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41
Fall 2008 Run on the Prime Funds
FRB Boston 41
MMIFF
Announced
10/21/08
AMLF
Announced
9/19/08
CPFF
Announced
10/7/08
Lehman Announces Bankruptcy
9/15/08
Reserve Fund Breaks the Buck
9/16/08
Source: imoneynet
Treasury Temporary Guarantee Program Announced 9/19/08
and Opened 9/29/08
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42
Commercial Paper Funding Facility Funds the purchase of 3-month unsecured CP or ABCP directly
from eligible issuers Restrictions apply
FRBNY lends to an SPV, which purchases CP from issuers through primary dealers
Purchase rates OIS + 300 bps for ABCP OIS + 100 bps for CP, with a 100 bps surcharge for non-TLGP
issuers
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43
CPFF
-100
0
100
200
300
400
-100
0
100
200
300
4008
/1/0
8
8/3
1/0
8
9/3
0/0
8
10
/30
/08
11
/29
/08
12
/29
/08
1/2
8/0
9
2/2
7/0
9
3/2
9/0
9
BPSBPS 3-Month CP Rates to OIS
AA Fin - OIS AA Nonfin - OISAA ABCP - OIS Unsecured CPFF SpreadABCP CPFF Spread
Oct27: CPFFLaunch
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44
Impact of CPFF on quantities
0%
10%
20%
30%
40%
50%
0
400
800
1200
1600
2000
Aug-08 Dec-08 Apr-09 Aug-09
Billions of Dollars Percent
Source: Federal Reserve Board of Governors
Total Outstanding in Market
Figure 8: Total Commercial Paper Outstanding
Total Outstanding in CPFF
CPFF as %of Market
CPFF Launch
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45
Spread: One-Month London Interbank Offered Rate (LIBOR) to O/N Index Swap (OIS) Rate
45
June 1, 2007 – October 23, 2009
Source: Financial times, Bloomberg, Haver Analytics
0
50
100
150
200
250
300
350
1-Jun-07 23-Nov-07 16-May-08 7-Nov-08 1-May-09 23-Oct-09
Basis Points
Reserve Fund breaks the buck (9/17/08)
Citigroup bailout (11/24/08)BNP
Paribas suspends hedge funds (8/9/07)
Basis PointsBasis Points
Lehmanbankruptcy (9/15/08)
Iceland Financial System Collapse(10/9/08)
Northern Rock bailout (9/12/07)
AIG Bailout (9/17/08)
US takeover GSEs (9/7/07)
Bailout of US financial system (10/3/08)Citigroup
receives $7.5 bn from Abu Dhabi (11/29/07)
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46
Asset-Backed Commercial Paper Rate
46
0
2
4
6
8
2-Jan-07 8-May-07 11-Sep-07 15-Jan-08 20-May-08 23-Sep-08 27-Jan-09 2-Jun-09 6-Oct-09
1-Day AA Asset-Backed Commercial Paper Rate
Percent
Source: Federal Reserve Board/Haver Analytics
June 1, 2007 – October 23, 2009
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47
Fourth phase of the financial crisis
0.5
11
.52
(tri
llio
ns
of
do
llars
)
2009q1 2009q2 2009q3 2009q4 2010q1
Federal Reserve System Balance Sheet
US Treasury Debt Agency Debt and MBS
Discount Window, TAF, and Swaps Repo and PDCF
AIG and Maiden Lanes AMLF, CPFF, and TALF
(January 2009 through present)
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48
Shut-down in term ABS markets
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49
Need for a new investor base
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50
2009
Implementation of new-issue ABS Term Asset-Backed Securities Loan Program (TALF) starting in March 2009
Legacy TALF and securities Public Private Investment Program (PPIP) program announced in March 2009 and implemented over summer 2009
Implementation of Federal Reserve large scale asset purchases (LSAP) throughout the year
Implementation of Supervisory Capital Assessment Program (SCAP) exercise for large depository institutions
Bankruptcy and re-organization of Chrysler and GM with assistance from UST
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51
TALF and New-Issue ABS Spreads
450
957555
0
200
400
600
800
1000
1200
6/2
8/0
8
7/2
8/0
8
8/2
8/0
8
9/2
8/0
8
10/2
8/0
8
11/2
8/0
8
12/2
8/0
8
1/2
8/0
9
2/2
8/0
9
3/3
1/0
9
4/3
0/0
9
5/3
1/0
9
6/3
0/0
9
7/3
1/0
9
8/3
1/0
9
9/3
0/0
9
10/3
1/0
9
11/3
0/0
9
BPS
Student Loan - Private (3 year)
Equipment (3 year)
Credit Cards (3 year)
Prime Auto (3 year)
Initial TALF Announcement First TALF Subscription
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52
TALF and new issue ABS for major asset classes
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
100000
Aut
o
Cred
it Ca
rd
Stud
ent L
oan
Equi
pmen
t
Aut
o
Cred
it Ca
rd
Stud
ent L
oan
Equi
pmen
t
Aut
o
Cred
it Ca
rd
Stud
ent L
oan
Equi
pmen
t
Aut
o
Cred
it Ca
rd
Stud
ent L
oan
Equi
pmen
t
Aut
o
Cred
it Ca
rd
Stud
ent L
oan
Equi
pmen
t
Aut
o
Cred
it Ca
rd
Stud
ent L
oan
Equi
pmen
t
Auto TALF
Auto
Credit Card TALF
Credit Card
Student Loan TALF
Student Loan
Equpiment TALF
Equipment
2005 2006 2007 2008 2009 2010
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53
Impact of public sector support for legacy assets
010
0020
0030
0040
00
01jul2008 01jan2009 01jul2009 01jan2010date
AJ AMA4
Fixed-rate conduit CMBSSecondary Market Spread Over Swaps
Super senior
AM
AJ
30%
20%
8%
Typical AAA capital structure
Super senior
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54
TALF: Large Impact but Limited Exposure
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
($ M
illio
ns)
New Issue Non-TALF ABS
TALF Eligible ABS
New Issue ABS
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55
Flight by Foreign Official Accounts from Agency Debt
Change in foreign holdings held in custody by Federal Reserve
(four week cumulative sum)
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56
Impact of LSAP on mortgage loan coupons
(Freddie Mac Primary Market Mortgage Survey Conventional Mortgage Rate LESS 10-year UST)
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57
What’s Next?
• Expiration of Special Liquidity Facilities
• Conclusion of LSAP
• Portfolio Management
Broader Questions
• Future of Securitization
• Improvements in Regulation and Supervision
• Strengthening Capital Requirements
• Improving Liquidity
• Addressing Too-Big-To-Fail• Resolution Regime for Systemically Important Institutions
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58
Summary
All of Fed’s actions were directed at protecting the American people from a more severe downturn.
Fed’s goal was to foster access to credit by businesses and individuals to met critical needs and keep the economy moving during a very critical period.