Stimulus.org - Fed

Prudent Commercial Real Estate Loan Workouts

Jason Peuquet — Wed, 25 Nov 2009 18:53:26 +0000

Date:

October 30, 2009

Who:

Fed

Policy Area:

Financial Sector Policy

Economic Target:

Financial Institutions

Action Type:

Regulatory Change

Maximum Amount Special Symbol:

Amount Spent Special Symbol:

Deficit Impact Special Symbol:

This policy statement, adopted by each of the financial regulators, provides guidance for examiners and financial institutions that are working with commercial real estate (CRE) borrowers who are experiencing diminished operating cash flows, depreciated collateral values, or prolonged delays in selling or renting commercial properties.

This policy statement details risk-management practices for loan workouts that support prudent and pragmatic credit and business decisionmaking.

Financial institutions that implement loan workouts for CRE as inidicated in this policy statement will not be subject to criticism for engaging in CRE loans, even if restructured loans have weaknesses and poor ratings. In addition, the credit rating for reviewed loans will not be lowered if solely the value of the collateral declines.

Source:

Federal Reserve Release 10/30/2009

Policy Statement for CRE Loans Workouts

Notes:

Associated costs, if any, are unknown.

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Fed Payment of Interest on Bank Reserves

Maya MacGuineas — Mon, 17 Aug 2009 14:12:07 +0000

Date:

October 6, 2008

Who:

Fed

Policy Area:

Financial Sector Policy

Economic Target:

Depository Institutions

Action Type:

Regulatory Change

Maximum Amount Special Symbol:

Amount Spent Special Symbol:

Federal Reserve will pay interest on depository institutions' required and excess cash reserves. Program originally slated to begin in October of 2011 was moved up to October 2008 because of the financial crisis. Objective is to compensate depository institutions for lost income they could derive by investing reserve funds elsewhere.

Source:

Federal Reserve Oct. 6 Release

Notes:

Cost of paying interest is unknown. Activities of the Federal Reserve are not directly recorded in the federal budget. However, each year the Federal Reserve remits a portion of its earnings to the general treasury. This remittance is generally in the range of $20-$30 billion per year, but the CBO estimates that the Fed's earnings will be lower by approximately $90 billion over the next ten years.

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Enhanced Consumer Protection for Credit Cards

Maya MacGuineas — Mon, 17 Aug 2009 14:04:40 +0000

Date:

December 18, 2008

Who:

Fed

Who:

NCUA

Who:

Treasury

Policy Area:

Financial Sector Policy

Economic Target:

Consumers

Economic Target:

Financial Institutions

Action Type:

Regulatory Change

Maximum Amount Special Symbol:

Amount Spent Special Symbol:

Deficit Impact Special Symbol:

New credit card regulations adopted under the Federal Trade Commission Act, in coordination with similar sets of new rules adopted by the Office of Thrift Supervision and the National Credit Union Administration.

The new regulations, as described on the Federal Reserve's website:

"Protect consumers from unexpected interest charges, including increases in the rate during the first year after account opening and increases in the rate charged on pre-existing credit card balances.
Forbid banks from imposing interest charges using the "two-cycle" billing method.
Require that consumers receive a reasonable amount of time to make their credit card payments.
Prohibit the use of payment allocation methods that unfairly maximize interest charges.
Address subprime credit cards by limiting the fees that reduce the amount of available credit."

Source:

Federal Reserve Announcement 12/18/2008

Details of New Rules

Notes:

Associated costs, if any, are unknown.

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Fed Guarantee of Bank of America Assets

suggp — Fri, 10 Jul 2009 19:37:42 +0000

Date:

January 16, 2009

Who:

Fed

Policy Area:

Financial Sector Policy

Economic Target:

Financial Institutions

Action Type:

Government Guarantee

Maximum Amount:

87000000000

Amount Spent:

Part of multi-agency government guarantee of approximately $118 billion in Bank of America assets, most of which it acquired through the purchase of investment bank Merrill Lynch. Under the terms of the agreement, Bank of America is responsible for the first $10 billion in losses on the assets. Remaining losses are divided 90/10 between the government and Bank of America. For the next $10 billion in losses, the Treasury and FDIC split the government’s 90% share. 90% of the remaining losses are covered by the Fed through a non-recourse loan.

See the companion guarantees of Bank of America assets by the Treasury and the FDIC.

Source:

Treasury Jan. 16th Release

Term Sheet for Bank of America Asset Guarantee

Notes:

Maximum amount figure represents total potential liabilities.

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Fed Guarantee of Citigroup Assets

suggp — Fri, 10 Jul 2009 19:29:08 +0000

Date:

November 23, 2008

Who:

Fed

Policy Area:

Financial Sector Policy

Economic Target:

Financial Institutions

Action Type:

Government Guarantee

Maximum Amount:

230000000000

Amount Spent:

Part of a government guarantee of $301 billion in Citigroup assets by multiple entities (Treasury, FDIC, Federal Reserve). After Citigroup absorbs the first $29 billion in losses, the remaining losses are split 90:10 between the government and Citigroup, with the first $5 billion absorbed by the Treasury with TARP funds, the next $10 billion paid by the FDIC, and the remaining losses covered by the Federal Reserve with a non-recourse loan.

See the companion guarantees of Citigroup assets by the Treasury and FDIC.

Source:

Treasury Nov. 23 Release

Term Sheet for Citigroup Asset Guarantee

Notes:

Maximum amount figure represents total potential liabilities.

On 1/16/2008, the Treasury revised its figure for total Citigroup guaranteed assets from $306 billion down to $301 billion.

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Interest Rate Changes

suggp — Thu, 09 Jul 2009 19:26:02 +0000

Federal Funds Rate

Who:

Fed

Policy Area:

Monetary Policy

Economic Target:

Financial Institutions

Economic Target:

Financial Institutions

Action Type:

Change in Interest Rate

The federal funds rate is the interest rate at which one bank lends money, available at the Federal Reserve, to another financial institution. It is determined by the Federal Open Market Committee (FOMC), which meets eight times per year in order to set monetary policy, review current economic conditions, determe risks to economic growth and fiscal sustainability, and adjust the federal funds rate. The FOMC comprises the seven member Fed Reserve Board of Governors, the president of the Federal Reserve Bank of New York, as well as four rotating members from the various regional Federal Reserve banks. Beginning in June of 2006, the FOMC began to lower interest rates from what was almost a five year high, at 5.25%. Since the financial crisis began however, the FOMC has continued to lower rates, finally reaching a floor of a floating rate between 0% and 0.25%.

Notes:

Since 12/16/2008 the federal funds rate has been a range between 0% and .25%. Since that date, the above graph displays the federal funds rate as the average of the range, or .125%. Federal funds rate historical tables can be found here.

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Federal Reserve Balance Sheet

suggp — Thu, 09 Jul 2009 19:19:12 +0000

Fed Balance Sheet

Who:

Fed

Maximum Amount:

5962760000000

Maximum Amount Special Symbol:

Amount Spent:

3085095000000

In recent months, the Federal Reserve has taken a number of unprecedented steps to stabilize the economy, going well beyond conventional monetary policy. In addition to reducing interest rates dramatically, as it would during a normal recession, the Federal Reserve has more than doubled the size of its balance sheet in order to provide liquidity to the financial system.

In particular, the Federal Reserve has created a number of new credit facilities designed to unclog the flow of credit, has undertaken a large scale purchase of assets, and has attempted to stabilize several systemically critical institutions through a combinations of loans, asset purchases, and guarantees.

These actions have not only resulted in an expanded balance sheet – from less than $1 trillion before the crisis to over $2 trillion today – but also a change in the composition. Whereas traditional holdings used to dominate the balance sheet, lending to financial institutions ballooned beginning in September of 2008. As these loans have shrunk, somewhat, they have been replaced with funds to provide liquidity to credit markets, the purchase of debts and assets from Fannie Mae and Freddie Mac, and the purchase of long-term treasury bonds.

Click here to read more about the Extraordinary Actions Taken by the Federal Reserve.

Source:

Federal Reserve Balance Sheet

Notes:

Maximum amount calculated by subtracting all amounts spent from the current size of the balance sheet, then adding all associated maximum amounts in the table. Amount Spent reflects the current size of the Federal Reserve Balance Sheet as of 3/6/2013. Activities of the Federal Reserve are not directly recorded in the federal budget. However, each year the Federal Reserve remits a portion of its earnings to the general treasury. This remittance is generally in the range of $20-$30 billion per year, but the CBO estimates that the Fed's earnings will be lower by approximately $90 billion over the next ten years.

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