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Working Paper
Central Bank Digital Currency: Central Banking for All?
The introduction of a central bank digital currency (CBDC) allows the central bank to engage in large-scale intermediation by competing with private financial interme-diaries for deposits. Yet, since a central bank is not an investment expert, it cannot invest in long-term projects itself, but relies on investment banks to do so. We derive an equivalence result that shows that absent a banking panic, the set of allocations achieved with private financial intermediation will also be achieved with a CBDC. Dur-ing a panic, however, we show that the rigidity of the central bank’s contract ...
Journal Article
The New Stone Soup
Countries around the globe face slow growth, low real interest rates, and persistently low inflation. This makes economies less resilient and less able to offset everyday shocks with traditional tools. Policymakers must actively look for outside perspectives and be courageous enough to take action in times of uncertainty. The following is adapted from a speech by the president and CEO of the Federal Reserve Bank of San Francisco delivered as part of the Iveagh House Lectures at the Irish Department of Foreign Affairs and Trade in Dublin on February 10.
Speech
The Federal Reserve’s Pandemic Response
Remarks at Union of Arab Banks Webinar: Global Banking in Light of COVID-19 and Geopolitical Development (delivered via videoconference).
Discussion Paper
Which Dealers Borrowed from the Fed’s Lender-of-Last-Resort Facilities?
During the 2007-08 financial crisis, the Fed established lending facilities designed to improve market functioning by providing liquidity to nondepository financial institutions—the first lending targeted to this group since the 1930s. What was the financial condition of the dealers that borrowed from these facilities? Were they healthy institutions behaving opportunistically or were they genuinely distressed? In published research, we find that dealers in a weaker financial condition were more likely to participate than healthier ones and tended to borrow more. Our findings reinforce the ...
Journal Article
The political origins of Section 13(3) of the Federal Reserve Act
At the height of the financial crisis of 2007-09, the Federal Reserve conducted emergency lending under authority granted to it in the third paragraph of Section 13 of the Federal Reserve Act. This article explores the political and legislative origins of the section, focusing on why Congress chose to endow the central bank with such an authority. The author describes how in the initial passage of the act in 1913, Congress demonstrated its steadfast commitment to the ?real bills? doctrine in two interrelated ways: 1) by limiting what assets the Fed could purchase, discount, and use as ...
Report
Market-Function Asset Purchases
This paper investigates the goals, costs, and benefits of official-sector purchases of government securities for the purpose of restoring market functionality. We explore the design of market-function purchase programs, including their communication, triggers, operational protocols, exit, and wind-down strategies. We further discuss whether, under some circumstances, fiscal buybacks might be a useful alternative or complement to central-bank market-function purchase programs, and how these buybacks could be funded. The use of fiscal buybacks to support market functionality can be aligned with ...
Speech
The New Stone Soup
Remarks at the Iveagh House Lecture, Dublin, Ireland, by Mary C. Daly, President and CEO, Federal Reserve Bank of San Francisco, February 10, 2020.
Speech
Forward-Looking Policy in a Real-Time World
Remarks delivered at Griswold Center for Economic Policy Studies, Princeton University, Princeton, New Jersey, March 4, 2023, by Mary C. Daly, President and Chief Executive Officer, Federal Reserve Bank of San Francisco.
Working Paper
Foreign Reserve Management and U.S. Money Market Liquidity: A Cost of Exorbitant Privilege
We show theoretically and empirically that the dollar’s status as the global reserve currencycan lead to economically significant changes in U.S. money market liquidity. We develop amodel in which U.S. money market spreads respond to foreign central banks’ exchange-ratemanagement decisions. Foreign central banks remove liquidity from U.S. money markets andcause spreads to widen by selling Treasuries to supply liquidity to their financial systems.Our analysis focuses on the major oil exporting countries with fixed exchange rates becausetheir foreign-exchange market interventions are ...
Report
Dealer financial conditions and lender-of-last resort facilities
We examine the financial conditions of dealers that participated in two of the Federal Reserve?s lender-of-last-resort (LOLR) facilities--the Term Securities Lending Facility (TSLF) and the Primary Dealer Credit Facility (PDCF)--that provided liquidity against a range of assets during 2008-09. Dealers with lower equity returns and greater leverage prior to borrowing from the facilities were more likely to participate in the programs, borrow more, and--in the case of the TSLF--at higher bidding rates. Dealers with less liquid collateral on their balance sheets before the facilities were ...