April 15, 2006 at 8:35 AM #6494powaysellerParticipant
Does anyone know why the Federal Reserve established Newbank?
In January 2004 the Board of Governors of the Federal Reserve System (“Board”)established a private-sector Working Group on NewBank Implementation (“Working Group”) to develop further the concept of a dormant bank (“NewBank”) that would be available for activation to clear and settle U.S. government securities(footnote 1) and facilitate triparty repurchase agreements.
NewBank would be activated only if (1) the market lost confidence in one of the existing banks that provide those services (the “clearing” banks), and (2) the exiting bank was not immediately able to sell its clearing business to another well-qualified bank.April 15, 2006 at 11:42 AM #24250BugsParticipant
Sufferin’ Succotash, I’m having another deja vu moment from the ’80s. I’m seeing the reincarnation of the Resolution Trust Corporation, aka “RTC”. I just KNEW we’d end coming full circle.April 15, 2006 at 12:36 PM #24252powaysellerParticipant
It seems like no big deal. My brother heard about this back in the late 90’s when he was still working on Wall Street.
The reason is there are only a couple private clearing banks for Federal securities and the Fed did not want to be dependent on them. I think the reason to have a backup was always related to risk management. It could be that the risk is now seen as larger so there was this extra push to get it done, but maybe it just took a while to get the bureaucractic work done. I am much more curious about why the Fed stopped publishing the M3 numbers . .
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