1 / 8

CHAPTER 27

CHAPTER 27. Policy Implementation. Who Are the Primary Dealers? Primary Dealers as of May 23, 2001.

carina
Download Presentation

CHAPTER 27

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. CHAPTER 27 Policy Implementation

  2. Who Are the Primary Dealers? Primary Dealers as of May 23, 2001 Below is a list of the 25 primary dealer that buy and sell securities directly with the Fed in the execution of monetary policy. In recent years, the number of primary dealers has fallen due to mergers among large financial institutions. ABN AMRO Inc. Fuji Securities Inc. BMO Nesbitt Burns Corp. Goldman, Sachs & Co. BNP Paribas Securities Corp. Greenwich Capital Markets, Inc. Bank of American Securities LLC HSBC Securities (USA) Inc. Bank One Capital Markets, Inc. J. P. Morgan Securities, Inc. Barclays Capital Inc. Lehman Brothers Inc. Bear Stearns & CO., Inc. Merrill Lynch Government Securities Inc. CIBC World Markets Corp. Morgan Stanley & Co. Inc. Credit Suisse First Boston Corp. Nomura Securities International, Inc. Daiwa Securities America Inc. SG Cowen Securities Corp. Deutsche Bank Securities Inc. Salomon Smith Barney Inc.Dresdner Kenilworth Benson UBS Warburg LLC North America LLC Zions First National Bank SOURCE: Federal Reserve Bank of New York.

  3. Total Reserves Demanded Total Reserves Supplies Total Reserves Components = = Buffer against check-clearing needs and other uncertainties Excess Reserves Borrowed Reserves (discount window) Nonborrowed Reserves Deposits at the Fed Vault Cash = = Transaction’s Reserve Deposits X Ratio Total Reserves SOURCE: Adapted from Ann-Marie Meulendyke, U.S. Monetary Policy and Financial Markets (New York: Federal Reserve Bank of New York, 1998).

  4. Week 1 Week 2 TWTFSSM TWTFSSM Week 3 Week 4 TWTFSSM TWTFSSM Week 5 TWTFSSM Two-Week Computation Period for Cash Two-Week Computation Period for Checkable Deposits TWTFSSM TWTFSSM TWTFSSM TWTFSSM TWTFSSM Two-Week Maintenance Period Reserve Computations Under Contemporaneous and Lagged Reserve Accounting (a) Reserve Computation and Maintenance Periods under Contemporaneous Reserve Accounting (b) Reserve Computation and Maintenance Periods under Lagged Reserve Accounting TWTFSSM TWTFSSM TWTFSSM TWTFSSM TWTFSSM TWTFSSM TWTFSSM TWTFSSM TWTFSSM Two-Week Computation Period for Cash and Checkable Deposits Two-Week Maintenance Period

  5. Assets $11,046 2,200 1,075 154 0 0 30,310 10 0 527,562 527,562 177,511 251,415 98,236 0 558,035 7,670 1,504 14,759 18,441 614,730 The Fed’s Balance Sheet as of May 31, 2001 (in Millions of Dollars) 1 Gold certificate account 2 Special drawing rights certificate account 3 Coin Loans 4 To depository institutions 5 Other 6 Acceptances held under repurchase agreements 7 Repurchase agreements—tripartya Federal agency obligationsb 8 Bought outright 9 Held under repurchase agreements 10 Total U.S. Treasury securitiesb 11 Bought outrightc 12 Bills 13 Notes 14 Bonds 15 Held under repurchase agreements 16 Total loans and securities 17 Items in process of collection 18 Bank premises Other assets 19 Denominated in foreign currenciesd 20 All othere 21 Total assets

  6. The Fed’s Balance Sheet as of May 31, 2001 (in Millions of Dollars) (continued) Liabilities 22 Federal Reserve notes 23 Reverse repurchase agreements—tripartya 24 Total deposits 25 Depository institutions 26 U.S. Treasury—General account 27 Foreign—Official accounts 28 Other 29 Deferred credit items 30 Other liabilities and accrued dividendsf 31 Total liabilities $564,934 0 24,040 19,238 4,396 85 321 7,910 3,467 600,351 Capital Accounts 32 Capital paid in 33 Surplus 34 Other capital accounts 35 Total liabilities and capital accounts $7,070 6,557 751 614,730 aCash value of agreements arranged though third-party custodial banks. bFace value of the securities cIncludes securities loaned-fully guaranteed by U.S. Treasury securities pledged with Federal Reserve Banks-and includes compensation that adjusts for the effects of inflation on the principal of inflation-indexed securities. Excludes securities sold and scheduled to be bought back under matched sale-purchase transactions. DValued monthly at market exchange rates. eIncludes special investment account at the Federal Reserve Bank of Chicago in Treasury bills maturing within 90 days. fIncludes exchange-translation account reflecting the monthly revaluation at market exchange rates of foreign exchange commitments SOURCE: Federal Reserve Bulletin (August 2001): A10

  7. Fed Activity • 1. No Fed buying or selling. • 2. The Fed uses matched sales. • 3. The Fed engages in system • repurchase agreements. Translation The Fed is not expected to intervene. The Trading Desk sells Treasury securi- Tiesto primary dealers. Buyers agree to sell them back at a specified time, usually the next day, which temporarily absorbs reserves. The Trading Desk provides funds (reserves) in exchange for Treasury securities with an agreement that dealers will repurchase them, usually the next day, which temporally increases reserves. Implication A reserve add or intervene drain is not required, or it can be accommodated later when more information is available or market conditions begin to more clearly reflect or indicate the need. A reserve drain is required, which may mean that either (a) the drain is consistent with prevailing Fed policy and necessary to prevent undesired fed funds rate declines or (b) the Fed has tightened. Reserves must be added, which may mean that either (a) the increase is consistent with prevailing policy and necessary to prevent undesired fed funds rates increases or (b) the Fed has eased. A Guide to Open Market Operations

  8. Fed Activity • 4. The Fed makes outright sales. • 5. The Fed makes outright • purchases. Translation A permanent transaction has occurred with no resale agreements. The Fed sells Treasury securities in the open market, absorbing reserves. Bills only are sold. The opposite of an outright sale has occurred. The Fed buys securities in the open market with no repurchase agreements on the part of the sellers, injecting reserves permanently. Implication Reserves are drained out of the banking system. Such a move is usually not associated with a change in policy, but is conducted seasonally and occasionally when underscoring a policy move toward restraint. Reserves are permanently added. The action is usually not associated with policy implications, but is conducted seasonally to provide for economic growth. Can occasionally signal policy moves toward easing. A Guide to Open Market Operations (continued)

More Related