Discussion Paper

Direct Purchases of U.S. Treasury Securities by Federal Reserve Banks

Abstract: From time to time, and most recently in the April 2014 meeting of the Treasury Borrowing Advisory Committee, U.S. Treasury officials have questioned whether the Treasury should have a safety net that would allow it to continue to meet its obligations even in the event of an unforeseen depletion of its cash balances. (Cash balances can be depleted by an unanticipated shortfall in revenues or a spike in disbursements, an inability to access credit markets on a timely basis, or an auction failure.) The original version of the Federal Reserve Act provided a robust safety net because the act implicitly allowed Reserve Banks to buy securities directly from the Treasury. This post reviews the history of the Fed’s direct purchase authority. (A more extensive version of the post appears in this New York Fed staff report.)

Keywords: liquidity buffer; safety net; direct purchases;

JEL Classification: E5; G2;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2014-09-29

Number: 20140929