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 Swaps with other Central Banks(in billions of US Dollars)
US FRB: Risk and Loss Assumptions (projected end-2009 balance sheet as of May 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? 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 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