Records

Rules and Regulations
Policy Statements and Other Actions
Special Liquidity Facilities and Other Initiatives
- Special Liquidity Facilities
- Other Intiatives
Discount Rates for Depository Institutions in 2009

Record of Policy Actions of the Board of Governors

This report provides a summary account of actions taken by the Board on questions of policy in 2009 as implemented through (1) rules and regulations, (2) policy statements and other actions, (3) special liquidity facilities and other initiatives, and (4) discount rates for depository institutions. All actions were approved by a unanimous vote of the Board members, unless indicated otherwise. More information on the actions with italicized dates is available via the online version of the Annual Report, from the "Reading Rooms" on the Board's FOIA web page, and on request from the Board's Freedom of Information Office.

Rules and Regulations

Regulation A Extensions of Credit by Federal Reserve Banks

[Docket No. R-1371]

On December 4, 2009, the Board approved a final rule establishing a process by which the Federal Reserve Bank of New York may determine the eligibility of credit rating agencies for the Term Asset-Backed Securities Loan Facility (TALF), a special liquidity facility. (See "Special Liquidity Facilities and Other Initiatives" for further discussion of the TALF.) The rule establishes criteria for determining the eligibility of agencies to issue credit ratings for asset-backed securities, other than those backed by commercial real estate, to be accepted as collateral for the TALF. The final rule is effective January 8, 2010.

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Regulation D Reserve Requirements of Depository Institutions

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Regulation I Issue and Cancellation of Federal Reserve Bank Capital Stock

[Docket Nos. R-1334, R-1350, and R-1307]

On May 18, 2009, the Board approved final rules (1) to direct Federal Reserve Banks to pay interest on certain balances held at Reserve Banks by or on behalf of certain depository institutions, (2) to authorize the establishment of "excess balance accounts" at Reserve Banks for the maintenance of excess balances of eligible institutions, (3) to increase from three to six the permissible number of transfers or withdrawals from savings deposits by check, debit card, or similar order payable to third parties, and (4) to authorize member banks to enter into pass-through arrangements. One of the final rules revises provisions of the interim final rule issued in October 2008 amending Regulation D. Those revisions relate to the payment of interest on respondent balances maintained in the accounts of "ineligible" pass-through correspondents (correspondent institutions ineligible to receive interest on balances maintained on their own behalf at the Federal Reserve), and the final rules implement other conforming amendments to Regulation D and Regulation I. The final rules are effective July 2, 2009.

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Regulation E Electronic Fund Transfers

[Docket No. R-1343]

On November 5, 2009, the Board approved a final rule that prohibits financial institutions from paying overdrafts on ATM (automated teller machine) and one-time debit card transactions, unless the consumer affirmatively consents, or opts in, to the overdraft service for those types of transactions. Before opting in, a consumer must be provided with a notice that explains the financial institution's overdraft services, including any associated fees, and the consumer's choices. The amendments prohibit financial institutions from discriminating against consumers who do not opt in, and institutions must provide consumers who do not opt in with the same terms, conditions, and features (including pricing) that they provide to consumers who do opt in. The final rule, which includes a model opt-in notice, is effective January 19, 2010, and compliance is mandatory July 1, 2010.

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Regulation H Membership of State Banking Institutions in the Federal Reserve System

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Regulation Y Bank Holding Companies and Change in Bank Control

[Docket R-1332]

On January 27, 2009, the Board approved a final rule to provide a temporary exemption for state member banks and bank holding companies participating in the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), a special liquidity facility. Under the exemption, which was approved as an interim measure in September 2008, asset-backed commercial paper held by these institutions as a result of their participation in the AMLF is exempt from the Board's leverage risk-based capital guidelines. The final rule is effective January 30, 2009. (The Board subsequently announced that the AMLF would expire on February 1, 2010.)

[Docket No. R-1361]

On June 23, 2009, the Board, acting with the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and Office of Thrift Supervision, approved a joint interim final rule with request for comment to provide that mortgage loans modified under the Department of the Treasury's Home Affordable Mortgage Program (HAMP, formerly Making Home Affordable Program) will retain the risk weight assigned to the loan before the modification. The modified loans must continue to meet other applicable prudential criteria. On November 2, 2009, the Board and the other banking agencies approved the interim final rule as a final rule with a clarification that mortgage loans whose HAMP modifications are in the trial period, and not yet permanent, qualify for the rule's risk-based capital treatment. The final rule is effective December 21, 2009.

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Regulation P Privacy of Consumer Financial Information

[Docket No. R-1280]

On October 26, 2009, the Board, acting with the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Office of Thrift Supervision, National Credit Union Administration, Federal Trade Commission, Commodity Futures Trading Commission, and Securities and Exchange Commission, approved a final rule to implement the privacy-notice and opt-out provisions of the Gramm-Leach-Bliley Act. Under the act, institutions must notify consumers of their information-sharing practices and inform consumers of their right to opt out of certain sharing practices. The rule includes a model privacy form that will make it easier for consumers to understand how financial institutions collect and share information about them. Financial institutions may rely on the model form as a safe harbor when providing privacy notices. The rule, which also removes sample clauses now included in an appendix to the regulation, is effective December 31, 2009 (except for the amendment removing the sample clauses, which is effective January 1, 2012).

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Regulation S Reimbursement for Providing Financial Records; Recordkeeping Requirements for Certain Financial Records

[Docket No. R-1325]

On September 2, 2009, the Board approved a revision to Regulation S to change the rates and conditions under which a government agency must reimburse a financial institution for costs incurred in producing customer financial records under the Right to Financial Privacy Act. The final rule is effective January 1, 2010.

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Regulation V Fair Credit Reporting

[Docket Nos. R-1203 and R-1255]

On January 26, 2009, the Board, acting with the Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), Office of Thrift Supervision (OTS), National Credit Union Administration (NCUA), and Federal Trade Commission (FTC), approved technical corrections to the rules regarding affiliate marketing, identity-theft red flags, and address discrepancies. The amendments are effective May 14, 2009, except for the instructions to appendix C, which are effective January 1, 2010.

[Docket No. R-1300]

On May 29, 2009, the Board, acting with the FDIC, OCC, OTS, NCUA, and FTC, approved final rules to implement certain provisions of the Fair and Accurate Credit Transactions Act regarding entities that furnish information about consumers (furnishers) to consumer reporting agencies. Under the rules, furnishers must establish reasonable policies and procedures to ensure the accuracy and integrity of the information they provide. The rules also identify the circumstances under which a furnisher must investigate a consumer's direct dispute about the accuracy of information in his or her credit report. The rules are effective July 1, 2010.

[Docket No. R-1316]

On December 17, 2009, the Board, acting with the FTC, approved final rules to implement the risk-based-pricing provisions of the Fair and Accurate Credit Transactions Act. Under the final rules, a creditor must generally provide a consumer with a risk-based-pricing notice when the creditor, on the basis of the consumer's credit report, provides credit to the consumer on less favorable terms than it provides to other consumers. The rules provide creditors with several methods for determining which consumers must receive notices and include exceptions to the notice requirement, such as when a creditor provides consumers who apply for credit with a free credit score and information about their score. The final rules are effective January 1, 2011.

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Regulation W Transactions Between Member Banks and Their Affiliates

[Docket No. R-1330]

On January 27, 2009, the Board approved a final rule to extend to October 30, 2009, a temporary exemption for member banks from certain provisions of section 23A of the Federal Reserve Act and the Board's Regulation W. The exemption, which was approved as an interim measure in September 2008, increases the capacity of member banks to enter into securities-financing transactions with their affiliates. The final rule is effective January 30, 2009. The Board allowed the rule to expire on October 30, 2009.

[Docket No. R-1331]

On January 27, 2009, the Board approved a final rule to provide a temporary exemption for member banks participating in the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), a special liquidity facility. The exemption from certain provisions of section 23A of the Federal Reserve Act and the Board's Regulation W was approved as an interim measure in September 2008 and increases the capacity of participating institutions to purchase asset-backed commercial paper from affiliated money market mutual funds. The final rule is effective January 30, 2009. (The Board subsequently announced that the AMLF would expire on February 1, 2010.)

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Regulation Y Bank Holding Companies and Change in Bank Control

[Docket No. R-1193]

On March 16, 2009, the Board approved a final rule to delay until March 31, 2011, the effective date of new limits on the inclusion of trust preferred securities and other restricted core capital elements in tier 1 capital under the Board's capital adequacy guidelines for bank holding companies. The new limits were scheduled to take effect on March 31, 2009, but were delayed in view of financial market conditions and in order to promote stability in the financial markets and the banking industry as a whole.

[Docket Nos. R-1336 and R-1356]

On May 20, 2009, the Board approved a final rule to allow bank holding companies to include in tier 1 capital without restriction senior perpetual preferred stock issued to the Department of the Treasury (Treasury) under the Troubled Asset Relief Program (TARP). This rule makes final the rule approved as an interim measure in October 2008. The Board also approved an interim final rule with request for comment to allow bank holding companies that are either S-Corps or mutual bank holding companies to include in tier 1 capital all subordinated debt issued to Treasury under TARP, provided that the subordinated debt will count toward the limit on the amount of other restricted core capital includable in tier 1 capital. In addition, the interim final rule will allow small bank holding companies that are S-Corps or mutual bank holding companies to exclude such debt from treatment as "debt" for purposes of the debt-to-equity standard under the Board's Small Bank Holding Company Policy Statement. The final rule is effective July 1, 2009, and the interim final rule is effective June 1, 2009.

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Regulation Z Truth in Lending

[Docket No. R-1340]

On May 7, 2009, the Board approved amendments to implement the Mortgage Disclosure Improvement Act (MDIA) that are intended to provide consumers with disclosures earlier in the mortgage process. In July 2008, the Board issued final rules requiring creditors to provide consumers with transaction-specific cost disclosures shortly after receiving an application for a closed-end loan secured by a consumer's principal dwelling. The MDIA expedites the effective date of these disclosure requirements by about two months, to July 30, 2009, as well as broadens and adds to the requirements. Under the Board's amendments to implement these requirements, creditors must (1) provide early cost disclosures for loans secured by dwellings other than a consumer's principal dwelling (such as a second home); (2) wait seven days after providing the early disclosures before closing the loan; and (3) provide new disclosures that include a revised annual percentage rate (APR), and wait an additional three days before closing the loan, if a change occurs that makes the APR in the early disclosures inaccurate beyond a specified tolerance. The amendments allow a consumer to expedite a loan closing in order to address a personal financial emergency, such as foreclosure. The amendments are effective July 30, 2009.

[Docket No. R-1364]

On July 15, 2009, the Board approved an interim final rule with request for comment to implement certain provisions of the Credit Card Accountability Responsibility and Disclosure Act. The interim final rule requires creditors to provide written notice to consumers 45 days before increasing an APR on a credit card account or making a significant change to the terms of an account. Creditors must also inform consumers, in the same notice, of their right to cancel the account before the increase or change goes into effect. If a consumer does so, the creditor is generally prohibited from applying the increase or change to the account. In addition, creditors must generally mail or deliver periodic statements for credit cards and other open-end consumer credit accounts at least 21 days before payment is due. The interim final rule is effective August 20, 2009.

[Docket No. R-1353]

On July 27, 2009, the Board approved final amendments to revise the disclosure requirements for private education loans, consistent with the requirements of the Higher Education Opportunity Act. Under the amendments, creditors that extend loans expressly for postsecondary educational expenses must provide disclosures about a loan's terms and features on or with the loan application and must disclose information about federal student loan programs that may offer less costly alternatives. Creditors must also provide additional disclosures when a loan is approved and when it is consummated. The new disclosure requirements do not apply to education loans made, insured, or guaranteed by the federal government, or in certain other situations (such as a credit card advance used to fund educational expenses). The amendments also include restrictions on using the name, emblem, or mascot of an educational institution in a way that implies the institution endorses a creditor's loans. The amendments, which include model disclosure forms, are effective September 14, 2009, and compliance is mandatory February 14, 2010.

[Docket R-1378]

On November 10, 2009, the Board approved an interim final rule with request for comment to implement a requirement in the Helping Families Save Their Homes Act that consumers receive written notice after their mortgage loan has been sold or transferred. Under the act, a purchaser or assignee that acquires a mortgage loan must provide the required disclosures in writing within 30 days. The interim final rule is effective November 20, 2009, and compliance is mandatory January 19, 2010.

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Regulation GG Prohibition on Funding of Unlawful Internet Gambling

[Docket No. R-1298]

On November 25, 2009, the Board, acting jointly with the Department of the Treasury, approved a final rule to extend the compliance date for the joint regulation implementing certain provisions of the Unlawful Internet Gambling Enforcement Act by six months, to June 1, 2010.

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Policy Statements and Other Actions

Homeownership Preservation Policy for Residential Mortgage Assets

On January 23, 2009, the Board approved a policy, developed pursuant to section 110 of the Emergency Economic Stabilization Act, to help prevent avoidable foreclosures on residential mortgage assets that are subject to section 110 and that are owned or controlled by a Reserve Bank. The Board also voted to voluntarily apply the policy to the residential mortgage assets held by the Maiden Lane limited liability companies, which were formed by the Federal Reserve Bank of New York to facilitate the acquisition of The Bear Stearns Companies, Inc. by JPMorgan Chase & Co. and to help stabilize the American International Group, Inc.

Interagency Questions and Answers Regarding Flood Insurance

[Docket No. R-1311]

On July 14, 2009, the Board, acting with the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Office of Thrift Supervision, National Credit Union Administration, and Farm Credit Administration, approved final revised Interagency Questions and Answers Regarding Flood Insurance. The questions and answers are intended to help financial institutions meet their responsibilities under federal flood insurance legislation and to increase public understanding of flood insurance regulation. The revised questions and answers, which supplement other guidance or interpretations issued by the agencies and the Federal Emergency Management Agency, are effective September 21, 2009, and supersede the agencies' questions and answers issued in 1997. (The Board also approved the issuance of five proposed new questions and answers for public comment.)

Maximum Maturity of Primary Credit Loans

On November 12, 2009, the Board approved a reduction in the maximum maturity of primary credit loans at the discount window for depository institutions from 90 days to 28 days, effective January 14, 2010. Before August 2007, the maximum available term of primary credit was generally overnight. The Federal Reserve lengthened the maximum maturity to 30 days (on August 17, 2007) and then to 90 days (on March 16, 2008) in order to enhance banks' access to term funds and thus support their ability to lend to households and businesses.

Policy Governing Eligibility, Qualifications, and Rotation for Directors of Federal Reserve Banks and Their Branches

On November 17, 2009, the Board approved revisions to its eligibility, qualifications, and rotation policy for Federal Reserve Bank and Branch directors. The revisions address situations in which previously permissible affiliations or stockholdings may become impermissible for Class B and Class C directors, as a result of a company's change in character. (Class B and Class C directors represent the public and may not be an officer, a director, or an employee of a bank; in addition, Class C directors may not own stock in a bank.) If a Class B or Class C director is affiliated with a company (an officer, a director, or an employee of a company) that becomes a bank holding company or that otherwise becomes an impermissible affiliation, the director must either resign from the affiliation or resign from the Reserve Bank's board within 60 days of the earlier of the date that (1) the director becomes aware of the impermissible affiliation or (2) the Board informs the Reserve Bank of the change in character of the company. A Class C director who holds stock in a company that becomes a bank holding company or who holds stock that otherwise becomes an impermissible holding must either divest the stock or resign from the Reserve Bank's board within 60 days of the earlier of the date that (1) the director becomes aware of the impermissible stockholding or (2) the Board informs the Reserve Bank of the change in character of the company. The revisions also clarify the rules regarding a Class C director's indirect ownership in a financial stock issuer.

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Special Liquidity Facilities and Other Initiatives

The Board modified certain aspects of the special liquidity facilities and other initiatives that were previously implemented to promote financial stability and support critical institutions. For more information on the establishment and purposes of the facilities and initiatives discussed in this section, see the Board's 2008 Annual Report.

Special Liquidity Facilities

On January 27, 2009, the Board extended its authorizations for the following facilities until October 30, 2009: Primary Dealer Credit Facility (PDCF), Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), Commercial Paper Funding Facility (CPFF), and Money Market Investor Funding Facility (MMIFF). (On January 7, 2009, the Board had announced changes to the MMIFF, including its economic parameters and the set of eligible investors for the facility.) The Board and the Federal Open Market Committee (FOMC) approved extending their authorizations for the Term Securities Lending Facility (TSLF) until October 30, 2009. All of the extensions were subject to the same collateral, interest rate, and other conditions previously established. The facilities had been scheduled to expire on April 30, 2009. (Further extensions are discussed in this section.)

On June 23, 2009, the Board extended its authorizations for the following facilities until February 1, 2010: AMLF, CPFF, and PDCF. The Board and the FOMC approved extending their authorizations for the TSLF until February 1, 2010. All of the extensions were subject to the same collateral, interest rate, and other conditions previously established. The Board reaffirmed that its authorization for the MMIFF would expire on October 30, 2009. The Board also trimmed the size and changed the terms of some facilities, in light of improving financial conditions and reduced usage of the facilities. Specifically, the Board reduced the amounts auctioned at biweekly Term Auction Facility (TAF) auctions from $150 billion to $125 billion, effective July 13, 2009, and stated that TAF funding may be reduced further, if warranted by market conditions. (See "Discount Rates for Depository Institutions in 2009" for further discussion of the TAF.) The Board and the FOMC suspended TSLF auctions backed by schedule 1 collateral (Treasury, agency-debt, and agency-guaranteed mortgage-backed securities), effective July 1, 2009, and the TSLF Options Program (TOP), effective with the maturity of outstanding June TOP options. The Board and the FOMC also reduced the frequency and size of TSLF auctions backed by schedule 2 collateral (schedule 1 collateral and investment-grade corporate, municipal, mortgage-backed, and asset-backed securities) from every two weeks to every four weeks, in amounts of $75 billion, and stated that amounts auctioned under the TSLF may be reduced further, if warranted by market conditions.

NOTE: On September 24, 2009, the Board announced reductions in the amounts of 84-day TAF auctions, as well as reductions in the maturities of those auctions. The Board and the FOMC also announced reductions in the amounts of schedule 2 TSLF auctions. On December 16, 2009, the Board and the FOMC announced that they anticipated the following facilities would expire on February 1, 2010: AMLF, CPFF, PDCF, and TSLF. The Board and the FOMC also announced that they expected the amounts provided under the TAF would continue to be scaled back in early 2010.

Term Asset-Backed Securities Loan Facility

The Board authorized the Term Asset-Backed Securities Loan Facility (TALF) in November 2008 in order to increase credit availability and support economic activity by facilitating the issuance of asset-backed securities (ABS) collateralized by consumer and small business loans. On February 6 and February 23, 2009, the Board approved revisions to the TALF's terms and conditions, including interest rates on loans, collateral haircuts, a revised definition of eligible borrowers, and additional specifications for ABS collateral. (Unless otherwise indicated, Board actions on the TALF in 2009 were approved by the unanimous vote of Chairman Bernanke, Vice Chairman Kohn, and Governors Warsh, Duke, and Tarullo.) On March 3, 2009, the Board and the Department of the Treasury (Treasury) announced the launch of the TALF for eligible holders of ABS backed by newly and recently originated auto, credit card, and student loans and by small business loans guaranteed by the Small Business Administration.

On March 19, 2009, the Board approved an expansion of the eligible collateral for loans extended under the TALF to include ABS backed by mortgage-servicing advances, loans or leases relating to business equipment, leases of vehicle fleets, and non-auto floorplan loans. In addition, the Board expanded the list of eligible auto-related receivables. ABS backed by mortgage-servicing advances were added to improve servicers' ability to work with homeowners to prevent avoidable foreclosures. The other new ABS categories complement the consumer and small business loan categories that were already eligible.

On April 21, 2009, the Board approved the establishment of two new interest rates for certain fixed-rate loans extended under the TALF that are collateralized by ABS with weighted average lives to maturity of less than two years and that do not benefit from a government guarantee. These new rates are based on one- and two-year London interbank offered (Libor) swap rates and are more closely matched to the duration of the underlying ABS collateral. The Board also announced other technical clarifications to the program.

On April 30, 2009, the Board approved an expansion of the eligible collateral for TALF loans to include newly issued commercial mortgage-backed securities (CMBS) and newly issued securities backed by insurance-premium-finance loans. The inclusion of newly issued CMBS as eligible collateral for TALF loans helps prevent defaults on economically viable commercial properties, increases the capacity of current holders of maturing mortgages to make additional loans, and facilitates the sale of distressed properties. The inclusion of insurance-premium ABS facilitates the flow of credit to small businesses. The Board also authorized TALF loans with maturities of five years to finance purchases of newly issued CMBS, ABS backed by student loans, and ABS backed by loans guaranteed by the Small Business Administration. In addition, some of the interest on collateral financed with a five-year loan may be diverted toward an accelerated repayment of the loan, especially in the fourth and fifth years.

On May 18, 2009, the Board approved an expansion of the eligible collateral for TALF loans to include certain high-quality CMBS issued before January 1, 2009 (legacy CMBS), in order to improve legacy CMBS markets and thereby facilitate the issuance of new CMBS, which in turn helps borrowers finance new purchases of commercial properties or refinance existing commercial mortgages on better terms.

On June 22, 2009, the Board approved (1) an alternate lending rate for TALF-eligible collateral consisting of ABS that are collateralized by private student loans and have a prime-based coupon and (2) other clarifying and technical changes to the TALF's terms and conditions. The alternate lending rate was established to help make private student loans more affordable and more readily available.

On June 30, 2009, the Board approved an increase in the administrative fee charged to TALF borrowers from 5 basis points to (1) 10 basis points for loans collateralized by ABS and (2) 20 basis points for loans collateralized by CMBS (newly issued and legacy).

On July 6, 2009, the Board approved an adjustment to the haircuts applied to any loans extended under TALF to Treasury-sponsored Public-Private Investment Funds (PPIFs). The haircuts were increased so that, if a PPIF borrowed from the TALF, the combined Treasury-supplied and TALF-supplied debt would be no greater than the total amount of TALF debt that would be available, leveraging the PPIF equity alone.

On August 13, 2009, the Board, acting with Treasury, approved an extension of the TALF through March 31, 2010, for TALF loans against newly issued ABS and eligible legacy CMBS. Because new CMBS transactions can take more time to arrange, TALF loans against newly issued CMBS were extended through June 30, 2010. TALF loans had been previously authorized through December 31, 2009.

On September 29, 2009, the Board approved an enhanced credit review process for TALF-eligible ABS to help ensure that TALF collateral complies with the Federal Reserve's high standards for credit quality, transparency, and simplicity of structure.

NOTE: On December 16, 2009, the Board and the FOMC announced that the anticipated expiration dates for the TALF remained set at June 30, 2010, for loans backed by newly issued CMBS, and March 31, 2010, for loans backed by all other types of collateral.

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Other Initiatives

Bank of America Corporation

On January 15, 2009, the Board, as part of a package of coordinated actions with the Department of the Treasury (Treasury) and the Federal Deposit Insurance Corporation (FDIC), authorized the Federal Reserve Bank of Richmond to enter into an agreement with Bank of America Corporation under which the Reserve Bank would make certain residual financing available to Bank of America in connection with a designated pool of approximately $118 billion in assets. (The Board also approved the issuance of a letter to the Secretary of the Treasury recommending that the Secretary invoke the systemic-risk exception to the least-cost-resolution requirements in the Federal Deposit Insurance Act to permit the FDIC to participate in the proposed agreement with Bank of America.) In September 2009, Bank of America paid an exit fee to terminate the term sheet with the Federal Reserve, Treasury, and the FDIC related to the residual financing arrangement and related guarantee protections.

American International Group, Inc.

On March 1, 2009, the Board approved a restructuring of the government's assistance to American International Group, Inc. (AIG) that, together with new capital to be provided by Treasury, would help stabilize the company, enhance the company's capital and liquidity, and facilitate the orderly completion of AIG's global divestiture program. As part of the restructuring, the Board authorized the Federal Reserve Bank of New York to (1) exchange a portion of AIG's existing outstanding debt under the revolving credit facility for preferred equity interests in special-purpose vehicles (SPVs) that would hold all of the equity interest in two AIG insurance subsidiaries, (2) provide up to approximately $8.5 billion in new loans to SPVs established by domestic life insurance subsidiaries of AIG to facilitate the securitization of designated blocks of existing life insurance policies held by the parent insurance companies, and (3) modify the interest rate payable under the revolving credit facility. Upon completion of these transactions, the maximum amount available under the revolving credit facility would be reduced.

Treasury Legacy Loans Program

On September 9, 2009, the Board approved the issuance of a letter to the Secretary of the Treasury recommending that the Secretary invoke the systemic-risk exception in the Federal Deposit Insurance Act to allow the FDIC and Treasury to implement the Legacy Loans Program under which the FDIC would guarantee debt issued by certain special-purpose entities, including Public-Private Investment Funds, established to acquire legacy assets from banking organizations.

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Discount Rates for Depository Institutions in 2009

Under the Federal Reserve Act, the boards of directors of the Federal Reserve Banks must establish rates on discount window loans to depository institutions at least every 14 days, subject to review and determination by the Board of Governors.

Primary Credit

Primary credit, the Federal Reserve's main lending program for depository institutions, is extended at a rate above the federal funds rate target set by the Federal Open Market Committee (FOMC). It is typically made available, with minimal administration and for very short terms, as a backup source of liquidity to depository institutions that, in the judgment of the lending Federal Reserve Bank, are in generally sound financial condition. On March 16, 2008, the Board announced a temporary change to the Reserve Banks' discount window lending practices to allow the provision of term financing for as long as 90 days. On November 17, 2009, the Board announced a reduction in the maximum maturity of such financing to 28 days effective January 14, 2010.

Throughout 2009, the primary credit rate was 1/2 percent.¹

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Secondary and Seasonal Credit

Secondary credit is available in appropriate circumstances to depository institutions that do not qualify for primary credit. The secondary credit rate is set at a spread above the primary credit rate. Throughout 2009, the spread was set at 50 basis points.

Seasonal credit is available to smaller depository institutions to meet liquidity needs that arise from regular swings in their loans and deposits. The rate on seasonal credit is calculated every two weeks as an average of selected money-market yields, typically resulting in a rate close to the federal funds rate target.

At year-end, the secondary and seasonal credit rates were 1 percent and 0.15 percent, respectively.²

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Term Auction Facility Credit

In December 2007, the Federal Reserve established a temporary Term Auction Facility (TAF). Under the TAF, the Federal Reserve auctions term funds to depository institutions that are in generally sound financial condition and are eligible to borrow under the primary credit program. The amount of each auction is determined in advance by the Federal Reserve, and the interest rate on TAF credit is determined by the bidding process as the rate at which all bids can be fulfilled, up to the maximum auction amount and subject to a minimum bid rate. Starting on January 12, 2009, the minimum bid rate was set at a level equal to the rate of interest that banks earn on excess reserve balances. Previously, the minimum bid rate for TAF auctions was determined based on a measure of the average expected overnight federal funds rate over the term of the credit being auctioned. At every TAF auction in 2009, the resulting interest rate on TAF credit was equal to the minimum bid rate, which remained at 1/4 percent throughout the year.

The Federal Reserve conducted regular $150 billion auctions of 28- and 84-day TAF credit throughout the first half of 2009.³ On June 25, 2009, in view of the improvement in financial market conditions and the associated decline in the demand for TAF funds, the Board announced a reduction in the amount auctioned to $125 billion and noted that TAF funding would be reduced gradually further if market conditions continued to improve. The amounts auctioned in August and September were reduced to $100 billion and $75 billion, respectively. On September 24, 2009, the Board announced that the amounts offered at auctions of 28-day credit would be maintained at $75 billion per auction to ensure that an adequate volume of funding was available in the period leading up to year-end and over year-end. The amounts offered at 84-day auctions were reduced to $50 billion effective in October and to $25 billion in November and December, and the maturities of those operations were aligned with the maturity dates in the cycle for 28-day funds. With the completion of that transition, the auction schedule for 2010 was converted to a single cycle of 28-day funds offered every 28 days. On December 16, 2009, the Federal Reserve indicated that it expected that amounts provided under the Term Auction Facility would continue to be scaled back in early 2010.

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Votes on Changes to Discount Rates for Depository Institutions

About every two weeks during 2009, the Board approved proposals by the 12 Reserve Banks to maintain the formulas for computing the secondary and seasonal credit rates as well as the auction method by which the TAF credit rate is set. In 2009, the Board did not approve any changes in the primary credit rate.

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1. The spread of the primary credit rate over the FOMC's target rate was ordinarily 100 basis points. In 2007, the Board approved a narrowing of this spread to 50 basis points and in 2008, approved a further narrowing to 25 basis points. Throughout 2009, the FOMC maintained a target range for the federal funds rate of 0 to 1/4 percent. Return to text

2. For current and historical discount rates, see www.frbdiscountwindow.org/. Return to text

3. For more information on TAF auctions, including minimum bid rates and the auction-determined rates on TAF credit, see www.federalreserve.gov/monetarypolicy/taf.htm. Return to text