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With the greatest of respects, will someone enlighten me as to what exactly happened between September 8th and 12th 2008 that has prompted the FED to produce this revision of the rules on this particular day? My gut instinct tells me there is a very substantial hidden fire somewhere that has not responded to the funds already splashed through the doors of the banks.
For immediate release
The Federal Reserve Board on Friday announced two final rules pertaining to the Asset-Backed Commercial Paper Money Market Fund Liquidity Facility (AMLF), which extends loans to banking organizations to finance their purchases of high-quality asset-backed commercial paper from money market mutual funds.
The first rule provides a temporary limited exception from the Board's leverage and risk-based capital rules for bank holding companies and state member banks. The second rule provides a temporary limited exception from sections 23A and 23B of the Federal Reserve Act, which establish certain restrictions on and requirements for transactions between a bank and its affiliates.
The two final rules, originally approved as interim final rules on September 19, 2008, will facilitate participation by depository institutions and bank holding companies as intermediaries between the AMLF and money market mutual funds. These exceptions are subject to various conditions to promote safety and soundness.
The Board has also adopted a third final rule, originally approved as an interim final rule on September 14, 2008. It provides a temporary exception to the limitations in section 23A of the Federal Reserve Act, allowing all insured depository institutions to provide liquidity to their affiliates for assets typically funded in the tri-party repo market. This exception expires on October 30, 2009, unless extended by the Board, and is subject to various conditions to promote safety and soundness.
The three final rules are attached.
Federal Register Notice, Regulations H and Y (31 KB PDF)
Federal Register Notice, Regulation W (30 KB PDF)
Federal Register notice, Regulation W (18 KB PDF)
2009 Monetary Policy Releases
Last update: January 30, 2009
ACTION: Final rule.
SUMMARY:
SUPPLEMENTARY INFORMATION:
After considering the comments, the Board has adopted a final rule that is identical to the interim final rule, except that the expiration date has been extended. Consistent with its purpose to ameliorate potential temporary dislocations in the U.S. triparty repurchase agreement market, the interim final rule provided that the exemption would expire on January 30, 2009, unless extended by the Board. Because of ongoing dislocation in the U.S. tri-party repurchase agreement market, the Board has extended the expiration date of this exemption to October 30, 2009. The Board notes that any securities financing transactions between the member
Administrative Procedure Act Pursuant to sections 553 (d) of the Administrative Procedure Act (5 U.S.C. § 553(d)), the Board finds that there is good cause for making the rule effective immediately on January 30, 2009. The Board has adopted the rule in light of, and to help address, the continuing unusual and exigent circumstances in the financial markets. The rule will provide immediate relief to participants in the U.S. tri-party repurchase agreement market.
For immediate release
The Federal Reserve Board on Friday announced two final rules pertaining to the Asset-Backed Commercial Paper Money Market Fund Liquidity Facility (AMLF), which extends loans to banking organizations to finance their purchases of high-quality asset-backed commercial paper from money market mutual funds.
The first rule provides a temporary limited exception from the Board's leverage and risk-based capital rules for bank holding companies and state member banks. The second rule provides a temporary limited exception from sections 23A and 23B of the Federal Reserve Act, which establish certain restrictions on and requirements for transactions between a bank and its affiliates.
The two final rules, originally approved as interim final rules on September 19, 2008, will facilitate participation by depository institutions and bank holding companies as intermediaries between the AMLF and money market mutual funds. These exceptions are subject to various conditions to promote safety and soundness.
The Board has also adopted a third final rule, originally approved as an interim final rule on September 14, 2008. It provides a temporary exception to the limitations in section 23A of the Federal Reserve Act, allowing all insured depository institutions to provide liquidity to their affiliates for assets typically funded in the tri-party repo market. This exception expires on October 30, 2009, unless extended by the Board, and is subject to various conditions to promote safety and soundness.
The three final rules are attached.
Federal Register Notice, Regulations H and Y (31 KB PDF)
Federal Register Notice, Regulation W (30 KB PDF)
Federal Register notice, Regulation W (18 KB PDF)
2009 Monetary Policy Releases
Last update: January 30, 2009
Regulation W; Docket No. R-1330
Transactions Between Member Banks and Their Affiliates: Exemption for Certain
Securities Financing Transactions Between a Member Bank and an Affiliate
AGENCY: Board of Governors of the Federal Reserve System (Board).
Transactions Between Member Banks and Their Affiliates: Exemption for Certain
Securities Financing Transactions Between a Member Bank and an Affiliate
AGENCY: Board of Governors of the Federal Reserve System (Board).
ACTION: Final rule.
SUMMARY:
In light of the continuing unusual and exigent circumstances in the financial markets, the Board has adopted a regulatory exemption for member banks from certain provisions of section 23A of the Federal Reserve Act and the Board’s Regulation W. The exemption increases the capacity of member banks, subject to certain conditions designed to help ensure the safety and soundness of the banks, to enter into securities financing transactions with affiliates.
DATE: January 30, 2009.
SUPPLEMENTARY INFORMATION:
In light of the ongoing dislocations in the financial markets, and the potential impact of such dislocations on the functioning of the U.S. tri-party repurchase agreement market, the Board adopted on September 14, 2008, on an interim basis with request for public comment, the following exemption from section 23A of the Federal Reserve Act (12 U.S.C. § 371c) and the Board’s Regulation W (12 CFR part 223). The exemption is meant to facilitate the ability of an affiliate of a member bank (such as an SEC-registered broker-dealer) to obtain financing, if needed, for securities or other assets that the affiliate ordinarily would have financed through the U.S. tri-party repurchase agreement market. The exemption is subject to several conditions designed to protect the safety and soundness of the member bank.
First, the member bank may use the exemption to finance only those asset types that the affiliate financed in the U.S. tri-party repurchase agreement market during the week of September 8-12, 2008.
Second, the transactions must be marked to market daily and subject to daily margin maintenance requirements, and the member bank must be at least as over collateralized in its securities financing transactions with the affiliate as the affiliate’s clearing bank was in its U.S. tri-party repurchase agreement transactions with the affiliate on September 12, 2008. The Board expects the member bank and its affiliate to use standard industry documentation for the exempt securities financing transactions (which would, among other things, qualify the transactions as securities contracts or repurchase agreements for purposes of U.S. bankruptcy law).
Third, to ensure that member banks use the exemption in a manner consistent with its purpose – that is, to help provide liquidity to the U.S. tri-party repurchase agreement market – the aggregate risk profile of the exempt securities financing transactions must be no greater than the aggregate risk profile of the affiliate’s U.S. tri-party repurchase agreement transactions on September 12, 2008. The exemption, therefore, permits an affiliate to obtain financing from its affiliated member bank for securities positions that the affiliate did not own or finance in the U.S. tri-party repurchase agreement market on September 12, 2008, but only if the new positions in the aggregate do not increase the overall risk profile of the affiliate’s portfolio.
Fourth, the member bank’s top-tier holding company must guarantee the obligations of the affiliate under the securities financing transactions (or must provide other security to the bank that is acceptable to the Board). Any member bank that intends to use a form of credit enhancement other than a parent company guarantee must consult in advance with Board staff. An example of the type of other security arrangement that may be acceptable to the Board would be a pledge by the affiliate or parent holding company to the member bank of a sufficient amount of additional liquid, high-quality collateral.
Fifth, a member bank may use the exemption only if the bank has not been specifically informed by the Board, after consultation with the bank’s appropriate Federal banking agency, that the bank may not use this exemption. If the Board believes, after such consultation, that the exempt securities financing transactions pose an unacceptable level of risk to the bank, the Board may withdraw the exemption for the bank or may impose supplemental conditions on the bank’s use of the exemption.
After considering the comments, the Board has adopted a final rule that is identical to the interim final rule, except that the expiration date has been extended. Consistent with its purpose to ameliorate potential temporary dislocations in the U.S. triparty repurchase agreement market, the interim final rule provided that the exemption would expire on January 30, 2009, unless extended by the Board. Because of ongoing dislocation in the U.S. tri-party repurchase agreement market, the Board has extended the expiration date of this exemption to October 30, 2009. The Board notes that any securities financing transactions between the member
bank and an affiliate are subject to the market terms requirement of section 23B of the Federal Reserve Act (12 U.S.C. § 371c-1). Section 23B requires that financial transactions between a bank and its affiliate be on terms and under circumstances (including credit standards) that are substantially the same, or at least as favorable to the bank, as those prevailing at the time for comparable transactions with or involving nonaffiliates. Among other things, section 23B would require the member bank to apply collateral haircuts to its affiliated securities financing transaction counterparty that are at least as strict as the bank would apply to comparable unaffiliated securities financing transaction counterparties.
Administrative Procedure Act Pursuant to sections 553 (d) of the Administrative Procedure Act (5 U.S.C. § 553(d)), the Board finds that there is good cause for making the rule effective immediately on January 30, 2009. The Board has adopted the rule in light of, and to help address, the continuing unusual and exigent circumstances in the financial markets. The rule will provide immediate relief to participants in the U.S. tri-party repurchase agreement market.
Comment