New York Fed

Robin Harding

The New York Fed’s latest quarterly report on household credit conditions is quite upbeat and somewhat at odds with the latest senior lending officers survey.

Especially interesting are the data on ‘transitions’, which show fewer new mortgages going bad, and some bad mortgages getting better.

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James Politi

One of the big debates in US economic and financial circles amid the sluggish recovery has centered around this question : are small businesses suffering, and not hiring, mainly because of a lack of demand for their products and services and uncertainty about the future, or is lack of available credit also constraining them in a significant way?

The Federal Reserve Bank of New York weighed in on this question today, releasing a new survey of small businesses conducted during the summer. “Prudent lending to creditworthy small firms who contribute to the recovery is in our collective interest: it’s good for our communities and it’s good for the American people,” said Kausar Hamdani, community affairs officer at the New York Fed. Read more

James Politi

US central bank officials have become increasingly worried about the contraction in spending by state and local governments, which is offsetting and undermining the remnants of the $862bn fiscal stimulus passed last year – and – to a certain degree, also their own efforts to boost the economy through easy monetary policy.

In this context, it is no surprise that staff at the New York Fed today released their own report on the budget crises in two states in their distrcit: New York and New Jersey, which are each grappling with multi-billion dollar deficits and are having to make tough choices on spending cuts.

 The most interesting part of the study comes towards the end, when authors, Richard Deitz, Andrew Haughwout and Charles Steindel, come up with a series of policy recommendations for state government officials in Albany and Trenton. Read more

James Politi

Talf is dead ! Long live Talf !

As of Wednesday, the Federal Reserve’s main programme to prop up consumer credit markets during the financial crisis – the Term Asset-Backed Securities Loan Facility - no longer exists.

There was relatively little of it left by the end of June, since many of its components, including the programmes designed to boost credit card loans, auto loans, small business loans and student loans, had already expired at the end of March. But one of its elements, the commercial real estate portion, had been kept alive until the end of June in order to further support that troubled sector.

Talf seems to have served its purpose well, at least according to an internal Treasury email (the Fed did not put out a release to mark the occasion, but Brian Sack, executive vice-president of the NY Fed, did give this speech on the topic on June 9). Read more

Simone Baribeau

What’s causing the foreclosure crisis? Is it the correction in home prices across the US from bubble-induced highs or is it, as many claim, a result of lax lending standards and predatory subprime loans?

The distinction isn’t just splitting hairs. Governors of the Federal Reserve and other policy makers have put quite a bit of effort into blaming failures of mortgage regulation (rather than market failures) for the crisis. But are no-income McMansion moms really the ones feeding the foreclosures? Or are otherwise credit-worthy homebuyers defaulting as they realise they owe hundreds of thousands more than their home is worth? After all – I can afford to pay back a loan of $500, but if I’ve used it to buy a tulip bulb that’s now worth $1.50, I might just decide to cut my losses and give it to the bank to garden.

Crunching the numbers leads to some interesting, if inconclusive, results. Read more

James Politi

We’re in the last throes of the battle over financial regulatory reform, and Barney Frank, the chief congressional negotiator on the legislation and chairman of the House financial services committee, today suggested a possible compromise on the Federal Reserve – one that would strip the three banker board members of the right to select regional bank presidents, but would safeguard the position of NY Fed president from political appointment.

It still needs to be voted on by the conference of lawmakers charged with reconciling the Senate and House versions of the bill, so nothing is etched in stone. But his proposal merits attention because it could be an elegant way to resolve the remaining differences.

Gone would be the controversial proposal to make the president of the Federal Reserve Bank of New York a political appointee – which was seen by some critics of the measure as a misguided attempt to politicise the US central bank. Read more

A plan to place the appointment of the New York Federal Reserve president under the jurisdiction of the White House and Senate, which the central bank fears will lead to its politicisation, could be abandoned on Wednesday.

The House financial services committee, chaired by Barney Frank, announced on Tuesday that it would seek to remove the proposal – which was included in a bill passed by the Senate last month – and replace it with an alternative that removes banks’ say in Fed appointments. Read more


By Gillian Tett Read more

Simone Baribeau

Why no public/private solution?

The Congressional Oversight Panel convened a hearing to speak with the lawyers from the Federal Reserve and NY Fed (and others) about the decision to bail-out AIG.

By all accounts, the Fed was blindsided by AIG’s liquidity situation. Though Michael Finn, the Office of Thrift Supervision’s northeast regional director, said there had been an OTS/NY Fed staff meeting to discuss the OTS’s concerns about AIG’s liquidity, representatives from the Fed and the NY Fed said they were unaware of the risks AIG posed to its counterparties until the Lehman Brothers weekend. Sarah Dahlgren, an executive vice president of the NY Fed, said that, until a couple days before the group’s collapse, it was not believed to be one of the top ten risks to counterparties.

And even then, AIG seemed to be a problem with a private sector solution. Read more

By Michael Mackenzie in New York

The two big clearing banks in the US tri-party repurchase or “repo” market will no longer bear significant credit risk to dealers under proposals made by an industry taskforce and endorsed by the Federal Reserve Bank of New York. Read more

James Politi

The political heat surrounding Stephen Friedman, the former chairman of the New York Federal Reserve Bank and Goldman Sachs director, is showing no signs of easing.

Over the weekend, the House oversight committee, led by Edolphus Towns, said it had reviewed internal Fed emails revealing “misgivings” within the US central bank that were ultimately “overruled” about letting Mr Friedman own Goldman shares while serving on the NY Fed board. Read more

Simone Baribeau

William C Dudley, president of the NY Federal Reserve, today spoke at length about the dangers of allowing a financial institution become “too-big-to-fail.”

Though he said there is “no one silver bullet” to prevent financial crisis (and, indeed, his speech highlighted the importance of effective macroprudential supervision and increasing the robustness of the financial system), he said that it was “critical that we ensure that no firm is too big to fail.”

The moral hazards with giant institutions were two-fold, he said. First, too-big-to-fail institutions would be able to get cheaper credit, since they’d effectively have an implicit government guarantee. Second, institutions would have an incentive to become large, simply so they could get the government backstop, reguardless of their financial health.

Notably, though, his solutions to the too-big-to-fail problem did not mention actually limiting firms’ size.  Read more

Simone Baribeau

It’s been a rough day for “TFG75″ – the email name for Tim Geithner. At least, it’s been a rough day according to intrade, which is giving Treasury secretary a 40 per cent chance of losing his job by the end of June, after a day of being grilled by the House oversight committee.

For a wrap of today’s hearings, see: Read more

Simone Baribeau

Ok, they’re not secret any more. But the New York Fed did, early on, put some effort into not disclosing the names of AIG counterparties. And so, in the run-up to Geithner’s testimony tomorrow, Darrell Issa, the Republican ranking member of the House oversight committee, has released the results of his investigation.

The report reads more like a Washington political thriller than a Congressional document. Just look at its title: “Public disclosure as a last resort: How the Federal Reserve fought to cover up the details of the AIG counterparties bailout from the American people”Read more

Simone Baribeau

The “tremendous expansion” of the NY Fed’s balance sheet, the bank has created a new “Special Investments Management Group,” the bank said today.

The new group will separate out the management of new investments from its financial risk management. Read more

Simone Baribeau

Willam C. Dudley, president of the NY Fed, today called for a systematic financial risk oversight framework, in which the Fed would play a key role.

“The financial system is simply too complex for siloed regulators to see the entire field of play, the prevent the movements of financial activity to areas where there are regulatory gaps, and, when there are difficulties to communicate and coordinate all responses in an timely and effective manner…I believe that the Federal Reserve has an essential role to play.”

And what of earlier Fed failures? Read more

Simone Baribeau

AIG is back on the House’s radar.

Earlier this week, Edolphus Towns, the Chairman of the House oversight committee, said he would subpoena the NY Fed for documents related to AIG counterparty payments and today he said that Tim Geithner had confirmed that he would speak before the committee later this month.

And separately, in a tersely worded response to Spencer Bachus, the Republican Ranking Member on the House Financial Services Committee, Barney Frank, the committee’s Democratic Chairman, said the Fed’s role in the AIG bail-out would be back on his committee’s agenda.

It is not, of course, the idea of looking into Chairman Ben Bernanke’s role that has Mr Frank up in arms. Mr Bernanke was, after all, a Republican appointee, and the decision to bail-out AIG and its counterparties came while Mr Bush was still president. It’s that Mr Bachus is continuing to focus on Tim Geithner, then head of the NY Fed and now Treasury Secretary.

But enough background, here’s the statement: Read more

Simone Baribeau

Edolphus Towns, the Chairman of the House oversight committee, today said he would subpoena the Federal Reserve Bank of New York for documents related to AIG counterparty payments.

“To help the Committee’s investigation of payments made by AIG to its counterparties, I am issuing a subpoena today to the Federal Reserve Bank of New York. This subpoena will provide the Committee with documents that will shed light on how and why taxpayer dollars were used for a backdoor bailout.”

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Alan Beattie

Federal Reserve Bank of New York announced today that it had published the rules it had been using with primary dealers in an effort to ensure greater transparency. Primary dealers, the groups through which the Federal Reserve funds are lent to banks, garnered attention after they, too, needed loans from the Fed to stop them from “dump[ing] assets on the market in fire sales” during the financial crisis. Lending directly to primary dealers, a move only permitted in “unusual and exigent circumstances” since lending to the highly-leveraged groups could encourage excessive risk taking.

The NY Fed emphasised that the new rules “do not represent new standards expected of primary dealers” but rather a “formalisation of the existing practice.”

The newly published rules include: Read more