Benanke talks about financial stability, broker credit facility
Fed Chairman Ben Bernanke is giving a talk about financial stability at the Federal Deposit Insurance Corporation's Forum on Mortgage Lending for Low and Moderate Income Households in Virginia. The big headlines? New mortgage rules will be forthcoming from the Fed next week ... and the PDCF lending facility may be extended. More in this excerpt below ...
"We supplemented our actions regarding Bear Stearns by establishing the Primary Dealer Credit Facility (PDCF). Under the PDCF, the Fed stands ready to make fully collateralized loans to the remaining four major investment banks plus other broker-dealers, called primary dealers, that transact regularly with the Federal Reserve. The Fed also created the Term Securities Lending Facility (TSLF), which allows primary dealers to borrow Treasury securities using other types of assets as collateral. These new facilities assured the secured creditors of primary dealers that those firms had sufficient access to liquidity, reducing the danger of runs like the one experienced by Bear Stearns. Although short-term funding markets remain strained, they have improved somewhat since March, reflecting the availability of several Fed lending facilities as well as the ongoing efforts of financial firms to repair their balance sheets and increase their liquidity.
"The PDCF and the TSLF were created under the Federal Reserve's emergency lending powers, with the term of the PDCF set for a period of at least six months, through mid-September. The Federal Reserve is strongly committed to supporting the stability and improved functioning of the financial system. We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end, should the current unusual and exigent circumstances continue to prevail in dealer funding markets. At the same time, we are taking measures that will serve over time to strengthen the primary dealers, other financial institutions, and the overall financial system. As I will discuss, these measures include working with the SEC and the primary dealers to increase the firms' capital and liquidity buffers and cooperating with other regulators and the private sector to help make the financial infrastructure more resilient."
"We supplemented our actions regarding Bear Stearns by establishing the Primary Dealer Credit Facility (PDCF). Under the PDCF, the Fed stands ready to make fully collateralized loans to the remaining four major investment banks plus other broker-dealers, called primary dealers, that transact regularly with the Federal Reserve. The Fed also created the Term Securities Lending Facility (TSLF), which allows primary dealers to borrow Treasury securities using other types of assets as collateral. These new facilities assured the secured creditors of primary dealers that those firms had sufficient access to liquidity, reducing the danger of runs like the one experienced by Bear Stearns. Although short-term funding markets remain strained, they have improved somewhat since March, reflecting the availability of several Fed lending facilities as well as the ongoing efforts of financial firms to repair their balance sheets and increase their liquidity.
"The PDCF and the TSLF were created under the Federal Reserve's emergency lending powers, with the term of the PDCF set for a period of at least six months, through mid-September. The Federal Reserve is strongly committed to supporting the stability and improved functioning of the financial system. We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end, should the current unusual and exigent circumstances continue to prevail in dealer funding markets. At the same time, we are taking measures that will serve over time to strengthen the primary dealers, other financial institutions, and the overall financial system. As I will discuss, these measures include working with the SEC and the primary dealers to increase the firms' capital and liquidity buffers and cooperating with other regulators and the private sector to help make the financial infrastructure more resilient."
posted by Mike Larson at
8:14 AM
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