Wikinvest Wire

The new Fed "baby steps"

Wednesday, June 10, 2009

It seems that the Federal Reserve has embarked upon a new "baby steps" campaign - not to normalize interest rates, but to disclose where all its newly printed Federal Reserve Notes are going, as detailed in this report at Bloomberg.

The Federal Reserve unveiled its most detailed picture yet of its record $1 trillion expansion of credit, as Chairman Ben S. Bernanke responds to congressional pressure for greater transparency from the central bank.

For the first time, the Fed announced details on the number of borrowers and the ratings of securities pledged as collateral for loans. The data come in a new monthly report released by the central bank today in Washington.

The Fed said a total of 378 banks borrowed from its discount window in May or got funds from auctions of cash aimed at combating the liquidity crisis. Officials still stopped short of identifying the firms, a measure called for by some lawmakers and the subject of freedom-of-information requests and lawsuits.
The entire report(.pdf) is available at the Fed's website and the press release is here. The graphic below, extracted from the report, isn't particularly encouraging.

IMAGE Despite their effort in creating a very nice looking report, the central bank's most recent attempt at transparency still falls well short of the level desired by some elected officials and assurances by the Fed to "continue to look for opportunities to broaden the scope of information and analysis we provide" are starting to sound a bit hollow.
Senator Bernie Sanders, the Vermont independent who sponsored an April 2 resolution that urged the Fed to identify borrowers and passed by a 20-vote margin, said today’s Fed report is “completely insufficient.”

“It is time for the Fed to name names,” Sanders said in a statement. The money “belongs to the American people,” and disclosure would show whether banks that are repaying the government’s capital injections are getting loans from the Fed, the senator said.

Among the new data, the Fed said an average 378 depository institutions borrowed $448 billion from the central bank in the four weeks ended May 27. That included 27 commercial banks with assets of more than $50 billion that took $257 billion, and 95 with less than $250 million in assets getting $1 billion.

Of the $618 billion in securities pledged as collateral to the Fed by banks, $125 billion are Treasuries or other federally backed assets, $215 billion have a AAA rating, $29 billion have a Baa/BBB rating and $131 billion have “other investment- grade” ratings that are “determined based on credit review” by the Fed.
Hopefully, the Federal Reserve Transparency Act of 2009 (HR1207) will continue to gain support in Congress and someday become law.


Anonymous said...

Good luck selling the sub prime and alt-A junk to withdraw liquidity when the time comes.

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