Banking Law Prof Blog

New President for Minneapolis Fed

The Federal Reserve Bank of Minneapolis has named a new President to replace Gary Stern, who recently retired.  Effective Oct. 8, the new President and CEO is Dr. Narayana Kocherlakota (the website even tells us how to pronouce it:  Nair-ah-yah-nah Koach-er-lah-ko-tah).   Dr. Kocherlakota is currently a professor of economics at the University of Minnesota.

Link to Announcement: http://www.minneapolisfed.org/news_events/rel/2009/093009.cfm

(ag) Sept. 7, 2009, in FRB, Economy

The Fed Flexing Its Muscles Over Executive Pay

The Federal Reserve is considering a plan to exercise unprecedented power over bank executive compensation.  The Wall Street Journal reports that the Federal Reserve claims authority to investigate and veto excessive compensation at financial institutions based on its safety-and-soundness regulatory power.

Link:    http://www.newser.com/story/69721/fed-plans-to-oversee-bankers-pay.html

(ag) Sept. 18, 2009, in Executive Compensation, FRB

Federal Reserve and the Discount Rate

Today, the Federal Reserve Board posted the minutes of its discount rate meetings from July 6, 2009 through Agu. 10, 2009.

Link:  http://www.federalreserve.gov/newsevents/press/monetary/20090908b.htm

What is the discount rate? 

"The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility--the discount window."

Link to FRB website for more information about the discount rate:  http://www.federalreserve.gov/monetarypolicy/discountrate.htm

(ag) Sept. 8, 2009, in Economy, FRB

The Federal Reserve's Discount Window

The Federal Reserve announced new collateral margin requirements for institutions that borrow at the discount window.  The new Collateral Margins Table will be effective October 19, 2009, which allows institutions time to adjust their collateral portfolios.

I'm providing a link to the Fed's announcement of the new collateral margin requirements, with a comparison between the new and the existing requirements.  I'm also posting a link to the Fed's Q&A about the Discount Window in general as a source of liquidity.  If an institution borrows at the discount window, it must put up collateral according to the collateral margin requirements.

LInk to Announcement:  http://www.frbdiscountwindow.org/20090819margins_announcement.cfm?hdrID=21

Link to Q&A:  http://www.frbdiscountwindow.org/Newmargins_faqs.cfm?hdrID=21&dtlID=#n1

(ag) August 19, 2009, in Federal Reserve

Federal Reserve Posts Annual Report for 2008

The Federal Reserve Board's 95th Annual Report (2008) is now available on the agency's website.  This will be worth spending some time with to review the unprecented steps taken to address the economic crisis.

Link:  http://www.federalreserve.gov/boarddocs/rptcongress/annual08/default.htm

(ag) June 21, 2009.

New Federal Reserve Governor Sworn In Today

Elizabeth Duke joins the Board of Governors of the Federal Reserve System today, beginning a term that lasts until Jan. 31, 2012.  Ms. Duke is a career banker, having worked for both a community bank in Virginia (Towne Bank) and for Wachovia Bank.  She is a former Chairman of the American Bankers Association and a graduate of the Stonier Graduate School of Banking.

Link:  https://www.federalreserve.gov/newsevents/press/other/20080804a.htm

(ag) Aug. 5, 2008, in FRB

Federal Reserve Extends Extraodinary Liquidity Measures

As we all know, this economic "downturn" is not over.  The Federal Reserve has been very innovative in developing new tools to enhance liquidity in the U.S. financial system.  Check out the Fed's recent press release which lists and explains some of these new tools -- but also notes that they are still needed and their authorization is being extended.

Link to FRB Press Release:  https://www.federalreserve.gov/newsevents/press/monetary/20080730a.htm

(ag) Aug. 5, 2008, in FRB

Fannie, Freddie, & the Fed - A Sunday Announcement

Two of the biggest participants in the U.S. secondary mortgage market, Fannie Mae and Freddie Mac, are experiencing serious repurcussions from the subprime mortgage debacle -- and their problems spill over into financial market drops and general mortgage lending liquidity concerns. 

Today, the Federal Reserve made a special Sunday announcement intended to shore up public confidence in these two major mortgage market players.  The Federal Reserve Bank of New York has been granted special authority to lend to them "to promote the availability of mortgage credit during a period of stress in financial markets."

Link to FRB Announcement:  http://www.federalreserve.gov/newsevents/press/other/20080713a.htm

Link to news story:  http://news.yahoo.com/s/ap/mortgage_giants_crisis

Last week the debate concerned former St. Louis Federal Reserve Bank President Bill Poole who has called for "nationalizing" Fannie Mae and Freddie Mac.

Link: http://www.bloomberg.com/apps/news?pid=20601087&sid=a7NPAG.LEjHQ&refer=home

(ag) July 13, 2008, in Economy/FRB

Fed's New Approach - Shades of FSLIC in the 1980's?

Mergers of underwater thrifts with slightly stronger ones postponed the S&L crisis of the 1980s --- but only for a time; meanwhile, ultimate losses had increased.  Could this be deja vu? Last week, the Fed & Treasury encouraged or arranged for JPMorgan Chase to offer to acquire Bean Steans, the investment firm going down for the third time as a result of the subprime mortgage crisis.

What about good old "moral hazard"?  It's an economic axiom that people take more risk with other people's money than with their own.  Is assisting this deal by guaranteeing $30 billion of Bear Stearns' troubled subprime mortgages rewarding not only Bear Stearns & its shareholders for bad decisionmaking but also JPMorgan Chase, which almost certainly had significant exposure resulting from credit default swaps?

Of course, if you approve of this bailout, you believe that it saves the financial markets from worse problems.  But have we seen the last of struggling giants in need of government assistance?  I think not.  So where does it stop?  Is this type of deal only masking and delaying problems?  And what about the homeowners facing foreclosure?  Should we bail out the big boys and leave mom & dad in the lurch?  But wait, even on the individual mortgage level, how do we separate the real victims from speculators?

This subprime mortgage situation has so many levels of risk-shifting.  It looks like a nation-wide shell game.  Not even the experts have unraveled all the financial machinations that spun out of subprime mortgages, so we still don't know where the actual losses will reside.  And it's impossible to tell when enough government assistance is enough -- and when it simply makes a bad situation worse.

Interesting links:

"In the Fed's Crosshairs:  Exotic Game"  http://www.nytimes.com/2008/03/23/business/23gret.html

" When feds save greedy firms, economy and morality collide" azcentral.com http://www.azcentral.com/news/articles/0323biz-moralhazard0323.html

New development:  Bear Stearns shareholders complain that $2 per share is too low.  JPMorgan Chase may increase its bid to $10, but the regulators reportedly don't like that.

Link:  http://news.yahoo.com/s/ap/20080324/ap_on_bi_ge/jpmorgan_bear_stearns

(ag) March 24, 2008, in Economy, FRB 

Fed Continues Liquidity Support

It's a new year, but the effects of last year's mortgage meltdown linger.  The Federal Reserve is continuing to provide special liquidity support, with the promise of "biweekly TAF auctions for as long as necessary to address elevated pressures in short-term funding markets."  The Term Auction Facility (TAF) is for 28 day credit.  The first two auctions, totaling $30B each, will be conducted Jan. 14 and Jan. 28.  No doubt this action will provide both real and psychological benefits.

Link to announcement:  http://www.federalreserve.gov/newsevents/press/monetary/20080104a.htm

(ag) Jan. 9, 2008, in FRB

The Fed's New HOEPA Regs Are Out for Comment

The Federal Reserve Board today announced that the long-awaited regulations Congress has pushed for to address predatory lending are out for public comment.  The proposed regulations will amend Regulation Z (Truth in Lending) for the purpose of protecting consumers from unfair or deceptive home mortgage lending and advertising practices.

I'll have more to say about this tomorrow after I've had a chance to look at the proposed regulations in  greater detail.

LInk:  http://www.federalreserve.gov/newsevents/press/bcreg/20071218a.htm

(ag) Dec. 18, 2007, in FRB, Predatory Lending

The Federal Reserve Board & the Mortgage Crisis: Using All the Tools in the Box

Last week the Federal Reserve Board pulled out all the stops to address the impact of the subprime mortgage meltdown on the financial markets and the economy.  While the Federal Open Market Committee (FOMC) lowered the target federal funds rate only 25 basis points to 4.25% rather than the more substantial cut Wall Street wanted, the Federal Reserve also lowered the discount rate from 5% to 4.75% and, on Friday, made the announcement that today (Monday, Dec. 17, 2007) it would address liquidity problems by offering $20 billion in 28-day credit through its Term Auction Facility.  This mechanism is not well known, nor is it frequently employed.  Check out the Federal Reserve Board's explanation of how financial institutions can bid for Federal Reserve advances.

Link to Dec. 11, 2007, announcement of FOMC interest rate cut:  http://www.federalreserve.gov/newsevents/press/monetary/20071211a.htm 

Links to announcements of discount rate reductions:  http://www.federalreserve.gov/newsevents/press/monetary/20071211a.htm

http://www.federalreserve.gov/newsevents/press/monetary/20071212b.htm

http://www.federalreserve.gov/newsevents/press/monetary/20071213a.htm

Link to announcement of new liquidity provision: http://www.federalreserve.gov/newsevents/press/monetary/20071214a.htm

(ag) Dec. 17, 2007, in FRB/Economy/Interest Rates

2006 HMDA Data Analysis

The Federal Reserve analysis of 2006 Home Mortgage Disclosure Act (HMDA) data is available on the Federal Reserve website.

The analysis begins with a recap of 2004 and 2005 HMDA data analyses.  One focus of this year's analysis relates to pricing issues in the mortgage market, highlighting differences that vary with type of lender, geographic area, and population group.  Like the 2004 and 2005 HMDA data analyses, the 2006 analysis demonstrates that black and Hispanic borrowers are more likely to obtain a higher interest rate loan than white borrowers.  Other credit factors factor into pricing decisions, but this is a point of concern. 

FRB analysts considered what the data can tell us about the subprime mortgage problems and are able to draw some conclusions, although the 2007 HMDA data will relate more to those issues.

Link:  http://www.federalreserve.gov/pubs/bulletin/2007/pdf/hmda06draft.pdf

(ag) Oct. 1, 2007, in FRB

FOMC Keeps Interest Rates at 5 1/4%

To no one's surprise, the Federal Open Market Committee (FOMC) today announced that it will maintain the target federal funds rate at 5 1/4%.  The vote was unanimous.  The FOMC statement recognized that economic growth was only moderate and the financial markets have been volatile, while core inflation has moderated.  Nevertheless, the FOMC weighs the risk of inflation to be greater than the risk to economic growth. 

Link to FOMC Statement:  http://www.federalreserve.gov/boarddocs/press/monetary/2007/20070807/default.htm

(ag) Aug. 7, 2007, in Economy/Interest Rates.

Senate Confirmation Hearing for 3 Federal Reserve Board Spots

Today, the Senate Banking Committee is holding confirmation hearings for two new potential Federal Reserve Governors and for current Governor Randall Kroszner's reappointment. 

Link to Senate Banking Committee posting, with resumes:  http://banking.senate.gov/index.cfm?Fuseaction=Hearings.Detail&HearingID=275

(ag) Aug. 2, 2007, in FRB

Minority Owned Financial Institutions

Federal Reserve Governor Randall Kroszner today delivered a speech entitled "Federal Reserve Initiatives to Support Minority-Owned Institutions and Expand Consumer  Protection" before the Interagency Minority Depository Institutions National Conference, Miami, Florida.

Did you know that there are currently 200 minority-owned financial institutions?

Link:  http://www.federalreserve.gov/boarddocs/speeches/2007/20070801/default.htm

(ag) Aug. 1, 2007, in FRB

What's Up With Bank Consolidation?

The St. Louis Federal Reserve Bank has assembled an instructive analysis of the bank consolidations over the past twenty years.  Today, the number of banking organizations is about half what it was in the 1980s.  Check out this on-line publication.

Link:  http://www.stlouisfed.org/publications/ar/2006/presmes.html

(ag) July 30, 2007, in FRB

Members of Congress Concerned About Reg B

Three members of Congress -- Melvin Watt (D-NC), Chairman of the House Financial Services Subcommittee on Oversight and Investigations; Carolyn Maloney (D-NY), Chairman of the Subcommittee on Financial Institutions & Consumer Credit; and Barney Frank (D-MA), Chairman of the House Financial Services Committee -- have sent a letter to the Government Accountability Office expressing their concern that the Federal Reserve has decided not to amend Regulation B, which implements the Equal Credit Opportunity Act (ECOA). 

In fact, they're so concerned that they are asking the GAO to conduct its own study of the impact of removing Reg B's prohibition on collecting and publicly reporting of race and gender data for non-mortgage credit. 

Link to letter:  http://www.house.gov/apps/list/press/financialsvcs_dem/press2071707.shtml

(ag) July 18, 2007, in Congress, Consumer Protection, Federal Reserve, Lending Issues

No Requirement to Give a Receipt if Transaction at Electronic Terminal Is $15 or Less

The Federal Reserve Board has approved a Final Rule amending Regulation E, which implements the Electronic Funds Transfer Act (EFTA).  Receipts will no longer be required to be provided to consumers for transactions at electronic terminals when the amount is $15 or less. 

The rule change facilitates the use of debit cards in retail environments where it may not be practical or cost effective to generate receipts.

Link:  http://www.federalreserve.gov/boarddocs/press/bcreg/2007/20070628/default.htm

(ag) June 28, 2007, in Reg E/FRB

"The Key to the Gold Vault"

Some interesting tidbits from a pdf booklet on the New York Federal Reserve Bank website:

• The Federal Reserve Bank of New York stores gold bullion belonging to 60 foreign central banks and international monetary organizations.  The Fed does not charge foreign countries for holding gold, but it does levy a handling fee when gold enters, is moved within, or is shipped out of the vault.
• That gold is housed in a vault that rests on the bedrock of Manhattan Island -- one of the few foundations adequate to support the weight of the vault, its door, and the gold inside -- 80 feet below street level and 50 feet below sea level.
• In mid-2004, the Fed's vault contained roughly 266 million troy ounces of gold (1 troy ounce is 1.1 times as heavy as the avoirdupois ounce we use for general measurement).  This represents 25 to 30% of the world's official monetary reserves.
• The NY Federal Reserve Bank stores gold in the form of bars that resemble construction bricks and stacks them on wooden pallets like those used in warehouses.  The shape of a bar may indicate whether it was cast in the U.S. or abroad.  Before 1986, bars cast in this country generally were rectangular bricks 7" long, 3 5/8" wide and between 1 5/8 to 1 3/4" thick.  Gold bars cast more recently in the U.S. or abroad are trapezoidal.  Bars from the NY Assay Office have square edges, bars from the Denver Assay Office have rounded sides, and bars from the San Francisco Assay Office have rounded corners.
• The NY Fed's vault holds only a small fraction of the U.S. gold reserves, a majority of which are held in depositories of the Treasury Dept. at Ft. Knox, KY, and West Point, NY.
• If you are still planning your summer vacation, you too could be one of the 25,000 visitors a year to view the NY Fed's Gold Vault.

Link:  http://www.ny.frb.org/education/addpub/goldvaul.pdf

(ag) June 26, 2007, in Federal Banking Agencies/FRB