Records

Regulation C
Regulation D
Regulation H
Regulation Y
Regulation W
Regulation Y
Regulation Z
Regulation AA
Regulation DD
Regulation Z
Regulation GG
Rules of Practice for Hearings
Rules regarding Equal Opportunity
Policy Statements and Other Actions

Record of Policy Actions of the Board of Governors

This report provides an account of actions taken by the Board on questions of policy in 2008 as implemented through (1) rules and regulations, (2) policy statements and other actions, (3) special liquidity facilities and other initiatives to address financial strains, and (4) discount rates for depository institutions. All actions were approved by a unanimous vote of the Board members, unless indicated otherwise. Full texts of the actions are 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. Policy actions in 2009 that affect actions approved in 2008 have been summarized through March 31, 2009, in editorial notes.

Rules and Regulations

Regulation C: Home Mortgage Disclosure

[Docket No. R-1321]

On October 20, 2008, the Board approved amendments to conform the rules for reporting price information on higher-priced loans with the definition of "higher-priced mortgage loans" adopted by the Board for Regulation Z in July 2008. The new reporting thresholds for first-lien and subordinate-lien loans are based on the rate spread between a mortgage's annual percentage rate (APR) and a survey-based estimate of APRs currently offered on prime mortgages. They are intended to cover subprime mortgages (and generally avoid covering prime mortgages) by requiring mortgage loans to be reported if the rate spread is 1.5 percentage points or more for first liens and 3.5 percentage points or more for second liens. The amendments are effective October 1, 2009.

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Regulation D: Reserve Requirements of Depository Institutions

[Docket No. R-1334]

On October 3, 2008, the Board approved an interim final rule with request for comment to permit the Federal Reserve to begin paying interest on depository institutions' required reserve balances (held by the Reserve Banks to satisfy depository institutions' reserve requirements) and excess balances (held by the Reserve Banks in excess of required reserve and clearing balances). The Financial Services Regulatory Relief Act authorized the Federal Reserve to pay interest on such balances, beginning October 1, 2011, and the Emergency Economic Stabilization Act accelerated the effective date to October 1, 2008. The interest rates paid are determined by a formula based on the target federal funds rate. The Board also made minor changes to its clearing-balance policy and the method for recovering float costs. The interim final rule is effective October 9, 2008.

On October 21, 2008, and November 4, 2008, the Board approved interim final rules with requests for comment to alter the formulas used for determining the interest rates paid on excess balances and on required reserves and excess balances, respectively.

On December 16, 2008, the Board approved an interim final rule to set the interest rates on required reserve balances and excess balances at 1/4 percent after the Federal Open Market Committee established a target range for the federal funds rate of 0 to 1/4 percent. The rule also provides that interest rates on those balances may be rates as determined by the Board from time to time rather than the rates in the regulation. The interim final rule is effective December 23, 2008, and the revised rates apply to maintenance periods beginning December 18, 2008.

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

Regulation Y: Bank Holding Companies and Change in Bank Control

[Docket No. R-1332]

On September 19, 2008, the Board approved an interim final rule with request for comment to provide state member banks or bank holding companies participating in the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF) (discussed under "Special Liquidity Facilities and Other Initiatives") with an exemption from the Board's leverage and risk-based capital guidelines for asset-backed commercial paper held as a result of participation in the facility. The exemption is subject to safety and soundness conditions. The interim final rule is effective September 19, 2008, and expires January 30, 2009, unless extended by the Board.

Note: On January 27, 2009, the Board approved final rules to conform with the extension of the AMLF to October 30, 2009.

[Docket No. R-1329]

On December 13, 2008, the Board, acting with the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and Office of Thrift Supervision, approved a final rule that permits a banking organization to reduce the amount of goodwill that it must deduct from tier 1 capital by the amount of any deferred tax liability associated with that goodwill. The final rule is effective January 29, 2009, and may be applied, at the banking organization's election, for purposes of the regulatory reporting period ending December 31, 2008.

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Regulation W: Transactions between Member Banks and Their Affiliates

[Docket No. R-1330]

On September 14, 2008, the Board approved an interim final rule with request for comment to provide a temporary exemption for member banks from certain limitations in section 23A of the Federal Reserve Act and Regulation W. The exemption increases the capacity of member banks to enter into securities-financing transactions with their affiliates and is subject to safety and soundness conditions. The interim final rule is effective September 14, 2008, and expires January 30, 2009, unless extended by the Board.

Note: On January 27, 2009, the Board approved a final rule that extended the expiration date for the exemption to October 30, 2009.

[Docket No. R-1331]

On September 19, 2008, the Board approved an interim final rule with request for comment to provide a temporary exemption for member banks from certain provisions of sections 23A and 23B of the Federal Reserve Act and Regulation W to facilitate use of the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF) (discussed under "Special Liquidity Facilities and Other Initiatives"). The exemption increases the capacity of participating member banks to purchase asset-backed commercial paper from affiliated money market mutual funds and is subject to safety and soundness conditions. The interim final rule is effective September 19, 2008, and expires January 30, 2009, unless extended by the Board.

Note: On January 27, 2009, the Board approved a final rule to conform with the extension of the AMLF to October 30, 2009.

On October 5, 2008, the Board granted a request by a depository institution for an exemption from the limits on transactions with affiliates under section 23A of the Federal Reserve Act and Regulation W to allow the institution to purchase assets from affiliated money market mutual funds under certain circumstances.The Board announced it would consider similar requests from depository institutions under similar circumstances.

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Regulation Y: Bank Holding Companies and Change in Bank Control

[Docket No. R-1336]

On October 13, 2008, the Board approved an interim final rule with request for comment to allow bank holding companies to include in their tier 1 capital without restriction the senior perpetual preferred stock they issue to the Department of the Treasury (Treasury) under its capital purchase program. Treasury announced the program, which was established under the Emergency Economic Stabilization Act, on October 14, 2008. The interim final rule is effective October 17, 2008.

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Regulation Z: Truth in Lending

[Docket No. R-1305]

On July 14, 2008, the Board approved comprehensive amendments under the Home Ownership and Equity Protection Act that are intended to (1) protect consumers in the home mortgage market from unfair, abusive, or deceptive mortgage lending and servicing practices; (2) preserve responsible lending and sustainable homeownership; (3) ensure that advertisements for mortgage loans provide accurate and balanced information and do not contain misleading or deceptive representations; and (4) provide consumers with transaction-specific disclosures early enough to assist them in selecting a mortgage. Among other changes, the final rule prohibits certain acts and practices in connection with mortgages, particularly higher-priced mortgages; revises the disclosure requirements for mortgage advertisements; and revises the timing requirements for providing disclosures for mortgages. The final rule is effective October 1, 2009, except for the requirement to establish escrow accounts for taxes and insurance for higher-priced mortgage loans, which is effective April 1, 2010 (October 1, 2010, for such loans secured by manufactured housing).

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Regulation AA: Unfair or Deceptive Acts or Practices

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Regulation DD: Truth in Savings

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Regulation Z: Truth in Lending

[Docket Nos. R-1314, R-1315, and R-1286]

On December 18, 2008, the Board approved comprehensive amendments that prohibit certain unfair or deceptive credit card practices and improve consumer disclosures in connection with credit card accounts, other revolving credit plans, and overdraft services. Among other changes, the amendments to Regulation AA, which are adopted under the Federal Trade Commission Act, prohibit banks from (1) increasing the rate on a pre-existing credit card balance (except under limited circumstances), (2) applying payments in excess of the minimum in a manner that maximizes interest charges, and (3) imposing finance charges based on balances on days in the current billing cycle and in the previous billing cycle, a practice that is sometimes referred to as "two-cycle" billing. Amendments to Regulation DD, which implements the Truth in Savings Act, address depository institutions' disclosure practices for overdraft services. Amendments to Regulation Z, which implements the Truth in Lending Act, revise the disclosures consumers receive in connection with their credit cards and other revolving (non-home-secured) credit plans to ensure that information is provided in a timely manner and in a form that is readily understandable. The Regulation AA and Regulation Z amendments are effective July 1, 2010, and the Regulation DD amendments are effective January 1, 2010.

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Regulation GG: Prohibition on Funding of Unlawful Internet Gambling

[Docket No. R-1298]

On November 7, 2008, the Board approved a joint final rule to implement the Unlawful Internet Gambling Enforcement Act. Under the new regulation, promulgated with the Department of the Treasury as required by the act, non-exempt U.S. financial institutions that participate in designated payment systems must establish policies and procedures that are reasonably designed to prevent or prohibit payments to gambling businesses involved in unlawful Internet gambling. The final rule also provides non-exclusive examples of such policies and procedures. Compliance with the final rule is required by December 1, 2009.

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Rules of Practice for Hearings

[Docket No. R-1333]

On September 19, 2008, the Board approved amendments to adjust the maximum amount of the statutory civil money penalties under its jurisdiction to account for inflation, as required by the Debt Collection Improvement Act. The amendments are effective October 12, 2008.

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Rules regarding Equal Opportunity

[Docket No. OP-1264]

On March 25, 2008, the Board approved the publication of an amendment to its Rules regarding Equal Opportunity as a final rule. Under the rule, certain noncitizen employees are eligible for access to sensitive information if they meet particular conditions and subject to a preference for U.S. citizens over equally qualified noncitizens. The final rule is effective April 2, 2008.

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Policy Statements and Other Actions

Statement to Servicers on Reporting of Loss Mitigation of Subprime Mortgages

On March 2, 2008, the Board approved a statement encouraging Federal Reserve-supervised financial institutions that service subprime mortgage loans to report their loss-mitigation activities consistent with uniform standards and to consider using the HOPE NOW alliance's loan-modification reporting standards for subprime residential mortgages. The Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Office of Thrift Supervision, and National Credit Union Administration issued similar statements to their supervised institutions.

Illustrations of Consumer Information for Hybrid Adjustable-Rate Mortgage Products

[Docket No. OP-1292]

On April 15, 2008, the Board, acting with the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Office of Thrift Supervision, and National Credit Union Administration, approved final illustrations of consumer information for certain hybrid adjustable-rate mortgage products. The illustrations are intended to assist financial institutions in implementing the consumer protection provisions of the Interagency Statement on Subprime Mortgage Lending issued in July 2007. Financial institutions may use the illustrations as provided, change their format, or tailor the information to specific transactions or products. The illustrations are effective May 29, 2008.

Memorandum of Understanding with the Securities and Exchange Commission on Information Sharing

On July 7, 2008, the Board approved a memorandum of understanding with the Securities and Exchange Commission that establishes a framework for collaborating, coordinating, and sharing information in areas of common regulatory and supervisory interest. The memorandum states that such efforts concerning certain banking and securities companies are important in maintaining effective oversight, promoting compliance with the banking and securities laws, fostering the stability of financial markets, and facilitating the effective execution of monetary policy by the Federal Reserve.

Interagency Guidance on the Supervisory Review Process for Capital Adequacy (Pillar 2) related to the Implementation of the Advanced Approaches Final Rule

[Docket No. OP-1322]

On July 14, 2008, the Board, acting with the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and Office of Thrift Supervision, approved interagency guidance for banking organizations using the advanced approaches final rule of the new capital adequacy framework that is popularly known as Basel II. The advanced approaches rule, which became final on April 1, 2008, implements a new risk-based capital framework that encompasses three "pillars." The interagency guidance relates to pillar 2 (supervisory review of capital adequacy) and provides details about the agencies' standards for ensuring that each institution subject to the advanced approaches rule has a rigorous process for assessing its overall capital adequacy in relation to its risk profile and has a comprehensive strategy for maintaining appropriate capital levels.

Policy Statement on Equity Investments in Banks and Bank Holding Companies

On September 19, 2008, the Board approved a policy statement to provide additional guidance on the Board's position on the types of minority equity investments in banks and bank holding companies that would not constitute "control" for purposes of the Bank Holding Company Act. The guidance covers director representation, total equity ownership, and consultations with management and discusses the permissible extent of a noncontrolling investment for each of these areas. The guidance also reiterates that control determinations are based on all the facts and circumstances surrounding an investor's investment in and relationship with a banking organization.

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Systemic-Risk Exceptions for Federal Deposit Insurance Corporation Guarantees

On October 13, 2008, the Board approved a proposal to broadly invoke the systemic-risk exception to the least-cost-resolution requirements in the Federal Deposit Insurance Act. Under the act, the Federal Deposit Insurance Corporation (FDIC) is generally required to resolve troubled depository institutions in a manner that is least costly to the deposit insurance fund. Invoking the systemic-risk exception allowed the FDIC to temporarily provide guarantees for new senior debt issued by insured depository institutions and their holding companies and for non-interest-bearing transaction deposit accounts at insured depository institutions. The FDIC provided the temporary guarantees in connection with the Department of the Treasury's capital purchase program that was announced on October 14, 2008.

On November 23, 2008, the Board approved a proposal to invoke the systemic-risk exception to allow the FDIC, with the Department of the Treasury (Treasury), to provide protection against unusually large losses on a designated pool of Citigroup Inc. assets. The protection was one aspect of a package of coordinated actions by the Board, FDIC, and Treasury (discussed under "Special Liquidity and Other Facilities") that reflect the U.S. government's commitment to supporting financial market stability and restoring vigorous economic growth.

Note: On January 15, 2009, the Board approved a proposal to similarly invoke the systemic-risk exception to allow the FDIC, with Treasury, to provide protection against unusually large losses on a designated pool of Bank of America Corporation assets, as part of a package of coordinated actions by the Board, FDIC, and Treasury.

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Interagency Statement on Meeting the Needs of Creditworthy Borrowers

On November 5, 2008, the Board, acting with the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and Office of Thrift Supervision, approved an interagency statement to emphasize the need for banking organizations and their supervisors to work together to ensure that the needs of creditworthy borrowers are being met during the ongoing period of financial and economic stress. The statement encourages banking organizations to lend to creditworthy borrowers, engage in capital planning, work with borrowers to avoid preventable foreclosures, and structure compensation incentives to support prudent lending and discourage excessive risk-taking.

Memorandum of Understanding with the Commodity Futures Trading Commission and the Securities and Exchange Commission on Credit Default Swaps

November 14, 2008, the Board approved a memorandum of understanding with the Commodity Futures Trading Commission and the Securities and Exchange Commission that reflects the intent of the parties to cooperate, coordinate, and share information in carrying out their respective responsibilities and exercising their respective authorities with regard to central counterparties for credit default swaps. The memorandum states that such efforts are important in maintaining effective oversight; fostering stability in the market for credit default swaps and in the financial system as a whole; and promoting compliance with banking, commodities, and securities laws.

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Policy on Payment System Risk

[Docket Nos. OP-1345 and OP-1346]

On December 13, 2008, the Board approved revisions to part II of its Policy on Payment System Risk to improve intraday liquidity management and payment flows for the banking system and to help mitigate the credit exposures of Federal Reserve Banks from daylight overdrafts. The revisions include a new approach that explicitly recognizes the role of the central bank in providing intraday balances and credit to healthy depository institutions, a zero fee for collateralized daylight overdrafts, a 50-basis-point (annual rate) charge for uncollateralized daylight overdrafts, and a biweekly daylight-overdraft-fee waiver of $150. The Board also approved an interim policy change for foreign banking organizations that relates to the calculation of the amount to be deducted from daylight-overdraft fees and early implementation of a streamlined procedure for maximum daylight-overdraft capacity. The interim policy change is effective March 26, 2009. The other revisions will be effective in either late 2010 or early 2011; a specific date will be announced at least 90 days in advance. In addition, the Board decided not to pursue a proposal to change the daylight-overdraft posting rules but stated that it will reconsider the proposal in the future.

Interagency Questions and Answers regarding Community Reinvestment

[Docket No. OP-1349]

On December 17, 2008, the Board, acting with the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and Office of Thrift Supervision, approved a final notice of new and revised Interagency Questions and Answers regarding Community Reinvestment. Among other new topics, the questions and answers provide guidance on (1) consideration by the agencies of a majority-owned financial institution's activities in cooperation with a minority- or women-owned financial institution or low-income credit union and (2) how an institution can demonstrate that investments in nationwide community development funds meet the geographic requirements of the Community Reinvestment Act. The agencies' revisions to existing questions and answers include, as additional examples of community development services, foreclosure prevention programs for low- or moderate-income homeowners and credit counseling to help low- or moderate-income borrowers avoid foreclosure. The interagency questions and answers are effective January 6, 2009, and supersede all previously published questions and answers.

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Special Liquidity Facilities and Other Initiatives

Against the background of continued fragility in financial markets, the Board established special liquidity facilities and authorized other initiatives in 2008 to address financial strains and support critical institutions. Unless otherwise indicated, the facilities and initiatives were established for the Federal Reserve Bank of New York and under section 13(3) of the Federal Reserve Act, which permits the Board, in unusual and exigent circumstances, to authorize Reserve Banks to extend credit to individuals, partnerships, or corporations that are unable to obtain adequate credit accommodations from other banking institutions. Also unless otherwise indicated, all facilities and initiatives authorized before August 31, 2008, were approved by the unanimous vote of Chairman Bernanke, Vice Chairman Kohn, and Governors Warsh, Kroszner, and Mishkin. After that date, all facilities and initiatives in 2008 were approved by the unanimous vote of Chairman Bernanke, Vice Chairman Kohn, and Governors Warsh, Kroszner, and Duke.

Special Liquidity Facilities

Term Securities Lending Facility

On March 11, 2008, the Board and the Federal Open Market Committee (FOMC) approved the establishment of the Term Securities Lending Facility (TSLF) to strengthen the financing position of primary dealers and foster improved conditions in financial markets more generally. Using an auction process, the facility lends up to $200 billion of Treasury securities to primary dealers for a term of 28 days (previous practice was to lend overnight) in transactions secured by a pledge of other securities.

On July 24, 2008, the Board and the FOMC extended their authorizations for the TSLF until January 30, 2009.

On September 14, 2008, the Board and the FOMC broadened the collateral accepted under the TSLF to include all investment-grade debt securities.

On November 24, 2008, the Board and the FOMC extended their authorizations for the TSLF until April 30, 2009.

Note: On January 27, 2009, the Board and the FOMC extended their authorizations for the TSLF until October 30, 2009.

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Primary Dealer Credit Facility

On March 16, 2008, the Board approved the establishment of the Primary Dealer Credit Facility (PDCF) to bolster market liquidity, promote orderly market functioning, and improve the ability of primary dealers to provide financing to participants in securitization markets. Under the facility, overnight loans to primary dealers may be collateralized by a broad range of investment-grade debt securities.

On July 24, 2008, the Board extended its authorization for the PDCF until January 30, 2009.

On September 14, 2008, the Board broadened the collateral accepted by the PDCF to closely match the types of collateral that may be pledged in the triparty funding arrangements of the major clearing banks.

On September 21, 2008, the Board authorized extensions of credit to the U.K. broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley, and Merrill Lynch and to the primary-dealer subsidiaries of these firms. Among other terms and conditions, credit extensions under these authorizations must be secured by the types of collateral accepted (1) at the PDCF, for the U.K. broker-dealer subsidiaries, and (2) at the primary credit facility for depository institutions or at the PDCF, for the primary-dealer subsidiaries.

On November 23, 2008, the Board authorized extensions of credit to the London-based broker-dealer subsidiary of Citigroup Inc. under the same terms and conditions.

On November 24, 2008, the Board extended its authorization for the PDCF until April 30, 2009.

Note: On January 27, 2009, the Board extended its authorization for the PDCF until October 30, 2009.

Term Auction Facility

On July 28, 2008, the Board approved the establishment of auctions for 84-day Term Auction Facility (TAF) loans, as a complement to the previously established auctions for 28-day TAF loans. The Board had initially established the TAF in December 2007 to provide depository institutions with a facility for obtaining advances from their local Reserve Banks at interest rates determined through auctions. By increasing depository institutions' access to funding, the TAF supports the ability of such institutions to meet the credit needs of their customers. The Board authorized the TAF under section 10B of the Federal Reserve Act, which permits (under certain terms and conditions) advances to individual member banks. The Federal Open Market Committee made coincident changes to its dollar-swap lines with several other central banks to accommodate similar auctions by those central banks of 84-day dollar loans.

Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility

On September 19, 2008, the Board approved the establishment of the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF) for the Federal Reserve Bank of Boston to provide funding to U.S. depository institutions and bank holding companies to help finance their purchases of high-quality asset-backed commercial paper from money market mutual funds. The facility is designed to assist money funds that hold such paper in meeting redemption demands from investors and to foster liquidity in asset-backed commercial paper markets and money markets more generally. The Board authorized the AMLF under sections 13(3) and 10B of the Federal Reserve Act (section 10B permits, under certain terms and conditions, advances to individual member banks).

On November 24, 2008, the Board extended its authorization for the AMLF until April 30, 2009.

Note: On January 27, 2009, the Board extended its authorization for the AMLF until October 30, 2009.

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Commercial Paper Funding Facility

On October 7, 2008, the Board approved the establishment of the Commercial Paper Funding Facility (CPFF) to provide a liquidity backstop to U.S. issuers of commercial paper (CP) through a special-purpose vehicle (SPV) that purchases three-month unsecured and asset-backed CP directly from eligible issuers. The CPFF removes much of the risk that eligible issuers will not be able to roll over their maturing CP, thereby encouraging investors to engage in term lending in the CP market. The CPFF is intended to improve liquidity in short-term funding markets, thus increasing the availability of credit for businesses and households. The SPV will stop purchasing CP on April 30, 2009, unless the Board extends the facility, and the SPV will continue to be funded by the Federal Reserve until the underlying assets mature.

On October 13, 2008, the Board approved additional details regarding the CPFF's implementation on October 27, 2008.

On December 25, 2008, the Board approved setting the interest rate on discount window loans to the CPFF's SPV at the maximum rate within the target range for the federal funds rate, if the target federal funds rate is a range of rates rather than a specific rate.

Note: On January 27, 2009, the Board extended its authorization for the CPFF until October 30, 2009.

Money Market Investor Funding Facility

On October 21, 2008, the Board approved the establishment of the Money Market Investor Funding Facility (MMIFF) to support a private-sector initiative designed to provide liquidity to U.S. money market investors, thus increasing their ability to meet redemption requests and their willingness to invest in money market instruments. Improved money market conditions in turn enhance the ability of banks and other financial intermediaries to accommodate the credit needs of businesses and households. Under the facility, the Federal Reserve provides senior secured funding to a series of private-sector special-purpose vehicles (SPVs). Each SPV purchases eligible money market instruments from eligible money market investors using financing from the facility and from the issuance of asset-backed commercial paper to investors. The SPVs will stop purchasing money market instruments on April 30, 2009, unless the Board extends the facility, and the SPVs will continue to be funded by the Federal Reserve until the underlying assets mature.

On December 24, 2008, the Board approved changes to the MMIFF that (1) expand the set of eligible investors that may participate in the facility and (2) adjust several of the facility's economic parameters to ensure that it remains a viable source of backup liquidity for money market investors even if money market interest rates are at low levels.

Note: On January 27, 2009, the Board extended its authorization for the MMIFF until October 30, 2009.

Term Asset-Backed Securities Loan Facility

On November 24, 2008, the Board approved the establishment of the Term Asset-Backed Securities Loan Facility (TALF) to support the issuance of asset-backed securities (ABS) collateralized by consumer and small business loans. The facility is designed to increase credit availability and support economic activity by facilitating renewed issuance of consumer and small business ABS at more-normal interest rate spreads. The TALF will lend up to $200 billion on a nonrecourse basis to holders of certain AAA-rated ABS. Using funds from the Troubled Asset Relief Program, the Department of the Treasury (Treasury) will provide $20 billion of credit protection to the Federal Reserve in connection with the facility.

On December 19, 2008, the Board approved revisions to the terms and conditions of the TALF.

Note: On February 6, 2009, and February 23, 2009, the Board approved further revisions to the TALF. On March 3, 2009, the Board and Treasury announced the launch of the TALF for eligible holders of ABS that are backed by newly and recently originated auto, credit card, and student loans and Small Business Administration-guaranteed small business loans. On March 19, 2009, the Board expanded the set of eligible collateral for loans 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, and expanded the list of eligible auto-related receivables.

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Other Initiatives

The Bear Stearns Companies Inc.

On March 14, 2008, the Board approved temporary emergency financing for The Bear Stearns Companies Inc. through an arrangement with JPMorgan Chase & Co. Bear Stearns, a major investment bank and primary dealer, was on the brink of failure after losing the confidence of investors and finding itself without access to short-term financing markets. The Board judged that a disorderly failure of Bear Stearns would threaten overall financial stability and would most likely have significant adverse implications for the U.S. economy.

On March 16, 2008, the Board authorized a nonrecourse loan of up to $30 billion that would be fully collateralized by a pool of Bear Stearns assets to facilitate JPMorgan's acquisition of Bear Stearns. The acquisition was completed on June 26, 2008.

Provisional Lending to Fannie Mae and Freddie Mac

On July 13, 2008, the Board authorized lending to the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) if necessary. The authorization was made under section 13(13) of the Federal Reserve Act, which permits (under certain terms and conditions) advances to an individual, a partnership, or a corporation on obligations of the United States, and is intended to supplement the Department of the Treasury's existing lending authority and to help ensure the ability of Fannie Mae and Freddie Mac to promote the availability of home mortgage credit during a period of stress in financial markets. No lending took place, and the companies were placed in conservatorship on September 7, 2008.

American International Group, Inc.

On September 16, 2008, the Board approved, with the support of the Department of the Treasury (Treasury), a secured loan of up to $85 billion for the American International Group, Inc. (AIG) to assist AIG in meeting its obligations as they become due and to facilitate a process under which it can sell certain businesses in an orderly manner with the least possible disruption to the overall economy. The condition of AIG, a large complex financial institution, had deteriorated rapidly, and a disorderly failure of AIG would likely have systemic implications and potentially adverse effects on the economy. The loan is subject to terms and conditions that protect the interests of the U.S. government and taxpayers.

On October 6, 2008, the Board authorized borrowing up to $37.8 billion in securities from certain regulated U.S. insurance subsidiaries of AIG, in return for cash collateral. The authorization applied to investment-grade fixed-income securities previously lent by the insurance subsidiaries to third parties. This facility was subsequently repaid and terminated on December 12, 2008.

On November 7, 2008, the Board and Treasury approved a restructuring of the government's financial support to AIG. The new measures are intended to establish a more durable capital structure, resolve liquidity issues, facilitate AIG's execution of its plan to sell certain businesses in an orderly manner, promote market stability, and protect the interests of the U.S. government and taxpayers. They include a purchase of AIG equity by Treasury, modified terms for the Federal Reserve's existing AIG liquidity facility, and two new Federal Reserve lending facilities that each support a distinct AIG portfolio of mortgage-related securities.

Note: On March 2, 2009, the Board and Treasury announced an additional restructuring for AIG, which continues to face significant challenges. The plan is intended to help stabilize the company and, in turn, the financial system.

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Citigroup Inc.

On November 23, 2008, the Board approved financing, if necessary, for Citigroup Inc. that would backstop residual risk in a pool of approximately $306 billion of Citigroup assets secured by residential and commercial real estate and certain other assets. Market anxiety about the condition of Citigroup had intensified, and concerns about the firm's access to funding continued to mount. The residual financing was approved as part of a package of coordinated actions with the Department of the Treasury (Treasury) and the Federal Deposit Insurance Corporation (FDIC). These actions included Treasury and the FDIC providing (1) protection against the possibility of unusually large losses on the Citigroup asset pool in return for preferred shares of Citigroup and (2) Treasury investing $20 billion in Citigroup under the Troubled Asset Relief Program in return for additional preferred shares.

Bank of America Corporation

Note: On January 15, 2009, the Board approved an agreement with Bank of America Corporation that is similar to the Citigroup arrangement of November 2008. Under the agreement, Treasury and the FDIC will provide protection against the possibility of unusually large losses on a pool of approximately $118 billion of financial instruments, in return for preferred shares in Bank of America. If necessary, the Federal Reserve Bank of Richmond will provide nonrecourse credit to Bank of America against this pool of financial instruments.

Discount Rates for Depository Institutions in 2008

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.

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Primary Credit

Primary credit, the Federal Reserve's main lending program, 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.

During 2008, the Board approved eight reductions in the primary credit rate, bringing the rate from 43.4 percent to 1.2 percent. One of these reductions came on March 16, when the Board approved a narrowing of the spread of the primary credit rate over the FOMC's target rate to 25 basis points, from 50 basis points, and 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.¹ These changes remained in effect at the end of 2008. In the remaining seven instances, the Board reached its determinations on the primary credit rate recommendations of the Reserve Bank boards of directors in conjunction with the FOMC's decisions to lower the target federal funds rate from 4-1/4 percent to a range of 0 to 1/4 percent. Monetary policy developments are reviewed more fully in other parts of this report (see the section "Monetary Policy and Economic Developments" and the minutes of FOMC meetings held in 2008).

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 2008, 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 1.05 percent, respectively.²

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. The Federal Reserve conducted regular autions of 28- and 84-day TAF credit in 2008.³

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Votes on Changes to Discount Rates for Depository Institutions

About every two weeks during 2008, 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. Details on the eight actions by the Board to approve changes in the primary credit rate are provided below.

January 22, 2008. Effective this date, the Board approved actions taken by the directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Chicago, Minneapolis, Dallas, and San Francisco to lower the rate on discounts and advances under the primary credit program by 3/4 percentage point, to 4 percent. The same decrease was approved for the Federal Reserve Bank of St. Louis, effective January 23, 2008. The Board also approved identical actions subsequently taken by the directors of the Federal Reserve Banks of Atlanta and Kansas City, effective January 24, 2008.

January 30, 2008. Effective this date, the Board approved actions taken by the directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Atlanta, Chicago, Kansas City, and San Francisco to lower the rate on discounts and advances under the primary credit program by 1/2 percentage point, to 3-1/2 percent. The same decrease was approved for the Federal Reserve Bank of St. Louis, effective January 31, 2008. The Board also approved identical actions subsequently taken by the directors of the Federal Reserve Banks of Richmond, Minneapolis, and Dallas, effective January 31, 2008.

March 16, 2008. Effective this date, the Board approved an action taken by the directors of the Federal Reserve Bank of New York to lower the rate on discounts and advances under the primary credit program by 1/4 percentage point, to 3-1/4 percent.⁴ The Board also approved identical actions subsequently taken by the directors of the Federal Reserve Banks of Boston, Cleveland, Richmond, Chicago, Minneapolis, Kansas City, and San Francisco, effective March 17, 2008.

March 18, 2008. Effective this date, the Board approved actions taken by the directors of the Federal Reserve Banks of Boston, New York, Cleveland, Chicago, Kansas City, and San Francisco to lower the rate on discounts and advances under the primary credit program by 3/4 percentage point, to 2-1/2 percent. The Board also approved identical actions subsequently taken by the directors of the Federal Reserve Banks of Richmond and Minneapolis, effective March 19, 2008. The Board also approved actions taken to lower the rate on discounts and advances under the primary credit program by 1 percentage point, to 2-1/2 percent, by the directors of the Federal Reserve Bank of Dallas, effective March 18, 2008; the Federal Reserve Banks of Atlanta and St. Louis, effective March 19, 2008; and the Federal Reserve Bank of Philadelphia, effective March 20, 2008.

April 30, 2008. Effective this date, the Board approved actions taken by the directors of the Federal Reserve Banks of New York, Cleveland, Atlanta, Chicago, Kansas City, and San Francisco to lower the rate on discounts and advances under the primary credit program by 1/4 percentage point, to 2-1/4 percent. The same decrease was approved for the Federal Reserve Bank of St. Louis, effective May 1, 2008. The Board also approved identical actions subsequently taken by the directors of the Federal Reserve Banks of Boston, Philadelphia, Richmond, Minneapolis, and Dallas, effective May 1, 2008.

October 8, 2008. Effective this date, the Board approved actions taken by the directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Minneapolis, Kansas City, Dallas, and San Francisco to lower the rate on discounts and advances under the primary credit program by 1/2 percentage point, to 1-3/4 percent. The same decrease was approved for the Federal Reserve Bank of St. Louis, effective October 9, 2008.

October 29, 2008. Effective this date, the Board approved actions taken by the directors of the Federal Reserve Banks of Boston, New York, Cleveland, Chicago, Kansas City, and San Francisco to lower the rate on discounts and advances under the primary credit program by 1/2 percentage point, to 1-1/4 percent. The same decrease was approved for the Federal Reserve Bank of St. Louis, effective October 30, 2008. The Board also approved identical actions subsequently taken by the directors of the Federal Reserve Banks of Philadelphia, Richmond, Minneapolis, and Dallas, effective October 30, 2008; and the Federal Reserve Bank of Atlanta, effective October 31, 2008.

December 16, 2008. Effective this date, the Board approved actions taken by the directors of the Federal Reserve Banks of New York, Cleveland, Richmond, Atlanta, Chicago, Minneapolis, Kansas City, and San Francisco to lower the rate on discounts and advances under the primary credit program by 3/4 percentage point, to 1/2 percent. The same decrease was approved for the Federal Reserve Bank of St. Louis, effective December 17, 2008. The Board also approved identical actions subsequently taken by the directors of the Federal Reserve Banks of Boston and Dallas, effective December 17, 2008; and the Federal Reserve Bank of Philadelphia, effective December 18, 2008.

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1. The spread of the primary credit rate over the FOMC's target rate is usually 100 basis points. In 2007, the Board had approved a narrowing of this spread to 50 basis points. 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 federalreserve.gov/monetarypolicy/taf.htm. Return to text

4. As March 16, 2008, was a Sunday, the new primary credit rate for the Federal Reserve Bank of New York was first applied on the next business day, Monday, March 17. Return to text