The Legal Position of the Central Bank
The Case of the Federal Reserve Bank of New York
Thomas C. Baxter, Jr.
General Counsel
Federal Reserve Bank of New York
January 19, 2009
London School of Economics & Political Science
Timeline

August 9, 2007
–
–

August 17, 2007
–

–
Federal Reserve announces Term Securities Lending Facility
March 14, 2008
–

Federal Reserve announces Term Auction Facility
Federal Reserve announces Reciprocal Currency Arrangements
March 11, 2008
–

Federal Reserve announces Term Discount Window Program
December 12, 2007
–

BNP Paribas freezes redemptions for three investment funds
ECB injects $95 billion into the interbank market
Federal Reserve lends $10-15 billion to JPMorgan Chase to lend to Bear Stearns
March 16, 2008
–
JPMorgan Chase acquires Bear Stearns
Timeline (continued)

March 17, 2008
–

September 7, 2008
–

Bank of America buys Merrill Lynch
September 15, 2008
–

United States bails out Fannie Mae and Freddie Mac
September 14, 2008
–

Federal Reserve opens Primary Dealer Credit Facility
Lehman Bros. declares bankruptcy
September 16, 2008
–
Federal Reserve lends AIG $85 billion
Timeline (continued)

September 19, 2008
–

September 25, 2008
–

Federal Reserve announces Money Market Investing Funding Facility
November 26, 2008
–

Federal Reserve opens Commercial Paper Funding Facility
November 24, 2008
–

Washington Mutual seized
October 27, 2008
–

Federal Reserve announces ABCP Money Market Fund Liquidity Facility
Federal Reserve announces Term Asset-Backed Securities Loan Facility
February 2009
–
Term Asset-Backed Securities Loan Facility expected to go live
Section 13(3) of the Federal Reserve Act
In unusual and exigent circumstances, the Board of Governors of the Federal
Reserve System, by the affirmative vote of not less than five members, may
authorize any Federal reserve bank, during such periods as the said board may
determine, at rates established in accordance with the provisions of Section 14,
subdivision (d), of this Act, to discount for any individual, partnership, or
corporation, notes drafts, and bills of exchange when such notes, drafts, and bills
of exchange are indorsed or otherwise secured to the satisfaction of the Federal
reserve bank: Provided, That before discounting any such note, draft, or bill of
exchange for an individual, partnership, or corporation the Federal reserve bank
shall obtain evidence that such individual, partnership, or corporation is unable to
secure adequate credit accommodations from other banking institutions. All such
discounts for individuals, partnerships, or corporations shall be subject to such
limitations, restrictions, and regulations as the Board of Governors of the Federal
Reserve System may prescribe.
Master Transaction Diagram
Maiden Lane LLC
State Street
BlackRock
[Investment Manager]
[Custodian/Administrator/ Collateral Agent]
Maiden Lane LLC
$29.0 bn
FRBNY
P & I on
Tranche A
Loan +
Residual
TRS
Fed Senior
Tranche A Loan
up to $29.0 bn
JPMorgan Tranche B
Loan
$1.0 bn
$30 bn
Residential
Loans
Derivatives
P & I on
Tranche B
Loan
JPMorgan
$1.0 bn
$30 bn market value of assets
and hedges
Commercial
Loans
Cash
Securities
Derivatives
with Various
Counterparties
Statement of Condition of All Federal Reserve Banks
December 31, 2008 ($ billions)
Assets
Securities
Treasuries
notes & bonds
bills
Federal Agency
Repos
Conventional
Single-tranche 28-day
Loans
TAF
Other Credit (AIG)
PDCF
PCF/SCF
AMLF
Maiden Lane LLC
Maiden Lane LLC II
Maiden Lane LLC III
CPFF
MMIFF
Other Assets
Total Assets
Aug. 08, 07
Dec. 31, 08
Liabilities
Aug. 8, 07
Dec. 31, 08
791
791
514
277
0
461
476
457
18
20
Reserve Balances of Banks
Excess Balances
Required Op Balances
13
12
2
860
838
22
Federal Reserve Banknotes
777
853
19
19
0
0
0
0
0
0
0
0
0
0
0
0
59
80
0
80
644
450
39
37
94
24
27
20
27
334
0
635
Treasury Balances at FRB
Treasury SFP
Foreign RP Pool
Reverse RPs
5
0
30
0
106
259
88
0
Other Deposits
Other Liabilities
Capital
0
10
34
21
34
42
2263
Total Liabilities & Capital
869
2263
869