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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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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
Summary of FRB Loss Scenario
Author’s assumptionsUS Federal Reserve: Risk and Loss Assumptions projected (September 9 2009 )
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.
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