Fed not accepting MBS'?

[c1ue]

Is this a mistake or misinterpretation? Or is the Fed really not accepting MBS'?

http://www.bloomberg.com/apps/news?p...er=patrick.net

Type of Collateral   Submitted      Accepted       Stop Rate
U.S. Treasuries     $12.15 billion $2.115 billion   4.72 percent
Agency              $19.25 billion $10.385 billion  4.80 percent
Mortgage-backed     $14.85 billion    None             N/A

TOTAL                $46.25 billion $12.5 billion

[Jim Nickerson]

Re: Fed not accepting MBS'?

Is this a mistake or misinterpretation? Or is the Fed really not accepting MBS'?

http://www.bloomberg.com/apps/news?p...er=patrick.net

Type of Collateral   Submitted      Accepted       Stop Rate
U.S. Treasuries     $12.15 billion $2.115 billion   4.72 percent
Agency              $19.25 billion $10.385 billion  4.80 percent
Mortgage-backed     $14.85 billion    None             N/A
 
TOTAL                $46.25 billion $12.5 billion

Has the Fed ever accepted MBS's. or is this banks submitting them to see if they will be accepted?

[bart]

Re: Fed not accepting MBS'?

Is this a mistake or misinterpretation? Or is the Fed really not accepting MBS'?

http://www.bloomberg.com/apps/news?p...er=patrick.net

The data is correct, and is also not unusual. Some days the Fed accepts MBSs and some days it doesn't.

Today for example, it accepted about $2.4B worth.

[GRG55]

Re: Fed not accepting MBS'?

Has the Fed ever accepted MBS's. or is this banks submitting them to see if they will be accepted?

I thought the Fed expanded what it would take as collateral at the Discount Window to include certain MBS on Friday August 17/07, when they cut the discount rate by 50 bips.

[bart]

Re: Fed not accepting MBS'?

I thought the Fed expanded what it would take as collateral at the Discount Window to include certain MBS on Friday August 17/07, when they cut the discount rate by 50 bips.

The Fed has been accepting MBSs as collateral at least since 2000, when the current data set starts. Sometimes it's been a relatively large amount too - in last June 2006 for example, it accepted about $16 billion. The average daily MBS amount since 2000 is about $900 million.

[c1ue]

Re: Fed not accepting MBS'?

Bart,

Do you also track the Fed's acceptance rates?

Don't know if there is anything useable there, but it is possible.

[bart]

Re: Fed not accepting MBS'?

Bart,

Do you also track the Fed's acceptance rates?

Don't know if there is anything useable there, but it is possible.

Yes, I do track them. It's quite is usable for trading in my opinion. Here's the short term chart from my daily page:

[GRG55]

Re: Fed not accepting MBS'?

The Fed has been accepting MBSs as collateral at least since 2000, when the current data set starts. Sometimes it's been a relatively large amount too - in last June 2006 for example, it accepted about $16 billion. The average daily MBS amount since 2000 is about $900 million.

Thanks for the correction bart.

But that just begets other questions. How does the Fed determine credit quality for the MBS paper it's taking as collateral? A joint Federal Reserve-Bank of Canada research paper that EJ posted back in August seemed to indicate that the Fed would depend on BAC, C, JPM to do that function (especially now that the credit agency ratings, by their own admission, are worth nothing). Is that what is really going on? Is it "reputational risk" for BAC, et al that ensures this policy will work? And finally, did the Fed in any way expand the definition of the collateral they would accept on August 17?

[bart]

Re: Fed not accepting MBS'?

Thanks for the correction bart.

But that just begets other questions. How does the Fed determine credit quality for the MBS paper it's taking as collateral? A joint Federal Reserve-Bank of Canada research paper that EJ posted back in August seemed to indicate that the Fed would depend on BAC, C, JPM to do that function (especially now that the credit agency ratings, by their own admission, are worth nothing). Is that what is really going on? Is it "reputational risk" for BAC, et al that ensures this policy will work? And finally, did the Fed in any way expand the definition of the collateral they would accept on August 17?

My pleasure on the correction - just paying it forward from all the times I had incomplete data.

I don't have the link handy for how the Fed determines MBS quality but from memory they do use "market ratings" in the AAA area... and in plain English, yes that means that the MBS collateral could have questionable elements in it.

But do keep in mind that TOMOs are very short term loans - usually 1-3 days, although they do go out to 2 weeks occasionally... and legally can go out to about 65 days. Also keep in mind that the borrower is liable to pay the Fed back 100% under current rules, so even if some MBS collateral did go *pow* during the period of a particular TOMO, the borrower would have to make the Fed good.


To the best of my knowledge, nothing changed on Aug 17th.


By the way, off topic a bit but borrowing at the discount window has returned to "normal" levels.

[jk]

Re: Fed not accepting MBS'?

i think i recall reading that the only mbs's the fed accepts are fannie and freddie backed paper.

[bart]

Re: Fed not accepting MBS'?

i think i recall reading that the only mbs's the fed accepts are fannie and freddie backed paper.

I think so too, but again I don't have or recall the link, and didn't want to muddy the waters even more without the actual facts and link.

[rzero]

Re: Fed not accepting MBS'?

i think i recall reading that the only mbs's the fed accepts are fannie and freddie backed paper.

This is my understanding, and apparently the WSJ's too:

http://blogs.wsj.com/economics/2007/...nomy-a-primer/

"To supply additional reserves, the Fed conducts a “repo” or repurchase operation. It offers to supply a fixed quantity of funds to primary dealers for 1 to 15 days in return for collateral consisting of either Treasurys, bonds issued by Fannie Mae or Freddie Mac (called agency bonds), or mortgage backed securities issued by Fannie Mae, Freddie Mac or Ginnie Mae."

I haven't seen the Fed change anything regarding open market operations since the credit crunch. As far as the discount window goes, what is accepted as collateral is up the the individual Fed banks. But there are only $173 million in open loans at the discount window right now. Small potatoes.