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The Federal Reserve System Balance Sheet: What has Happened and Why it Matters. Peter Stella Advisor Monetary and Capital Markets Department International Monetary Fund Swiss National Bank, Zurich, September 30, 2009

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the federal reserve system balance sheet what has happened and why it matters

The Federal Reserve System Balance Sheet: What has Happened and Why it Matters

Peter Stella

Advisor

Monetary and Capital Markets Department

International Monetary Fund

Swiss National Bank, Zurich, September 30, 2009

The views in this presentation are the author’s and do not represent those of the IMF, its Management or Executive Board

us federal reserve risk and loss assumptions projected september 9 2009

Table A2

Envelope

Summary of FRB Loss Scenario

(US$ billion)

Asset

Exposure

Lo

ss

6

TAF

/Primary

232

CPFF

/AMLF

46

1

AIG Loan

39

15

Maiden Lane

61

37

37

TALF

4

Total

415

63

Source:

Author’s assumptions

US Federal Reserve: Risk and Loss Assumptions projected (September 9 2009 )
federal reserve system financial or governance risk

Federal Reserve System: Financial or Governance Risk?

It is quite improbable that the FRB would encounter financial problems necessitating a change in monetary policy

However, there are considerable political pressures to restrict the Fed’s operational independence given the sharply contrasting governance arrangements for the US Treasury and FRB although, in reality, they are provided with similar powers

In order to prevent a loss of monetary policy independence, it may be advisable to isolate those strictly monetary authority functions and place them under a more streamlined governance structure (FOMC?)

The FRB “emergency” powers, under section 13.3 might then be placed in a more directly politically accountable governance structure—with US Treasury and Regulator representation.

federal reserve system balance sheet risk management and the exit strategy

Federal Reserve System Balance Sheet Risk Management and the Exit Strategy

Website publication of SPV balance sheets and consolidation with FRB accounts accompanied by descriptions of unconventional measures marks significant progress in transparency

Reconfigure FRB balance sheet to reduce risk and build capital

Dispose of SPVs, enhance reserves, move toward dividend distribution after publication of audited accounts

Separate monetary policy with all elements under FOMC or reformed structure

Small operations with minimal credit risk

Financial market stability entity with intervention capacity

Scaleable balance sheet w/o capacity to create money

Design governance structure and determine how SMC would fit within the new regulatory and supervisory framework