United States: The White House: President\u27s Working Group on Financial Markets\u27 (PWG)

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EliScholar – A Digital Platform for Scholarly Publishing at Yale YPFS Resource Library 10-6-2008 Statement by the President's Working Group on Financial Markets United States: The White House: President's Working Group on Financial Markets' (PWG) https://elischolar.library.yale.edu/ypfs-documents2/51  This resource is brought to you for free and open access by the Yale Program on Financial Stability and EliScholar, a digital platform for scholarly publishing provided by Yale University Library. For more information, please contact ypfs@yale.edu. 5/27/2020 Statement by the President’s Working Group on Financial Marketshttps://www.treasury.gov/press-center/press-releases/Pages/hp1177.aspx 1/3U.S. DEPARTMENT OF THE TREASURYPress Center Statement by the President’s Working Group on Financial Markets10/6/2008HP-1177Washington, DC-- The President's Working Group on Financial Markets issued the following statement today:Conditions in U.S. and global financial markets remain extremely strained.   The President's Working Group on Financial Markets (PWG)is working with market participants and regulators globally to address the current challenges and restore confidence and stability tofinancial markets around the world. With the passage of the Emergency Economic Stabilization Act of 2008 (EESA), Congress has granted important new authorities to theTreasury, Federal Reserve, and the FDIC.   These new authorities will be employed in conjunction with existing authorities to restoremarket confidence by strengthening the balance sheets of financial intermediaries and improving overall market functioning. The diversity of institutions and markets under stress, and the magnitude and complexity of the adjustment underway, requires that thetools available to policymakers, regulators and supervisors be used in forceful and coordinated ways across regulatory and supervisoryagencies in the United States and throughout the world.   This will involve moving with substantial force on a number of fronts.   Thesebroad initiatives are outlined below.   Strengthening Financial InstitutionsThe Treasury Department will move rapidly to implement the new authorities in EESA to help strengthen financial institutions that arestruggling with troubled assets and/or need to raise capital. It will be done in a transparent and methodical fashion.   In the coming days,Treasury will work with the Federal Reserve and other financial regulators to develop strategies that deploy these tools to maximize theireffectiveness in strengthening the financial system while protecting the taxpayers' interests.  The new legislation adds broad, flexible authorities to allow Treasury to buy troubled assets and provide guarantees, and address capitalraising.   The new legislation also enables Treasury to directly strengthen the balance sheet of individual institutions.   These authoritiesallow Treasury to act to remove some of the uncertainty regarding financial strength, and provide financial institutions with greateroperating flexibility and enhance their ability to raise additional capital in the private marketplace.FDIC Stand-alone AssistanceThe FDIC has broad powers to protect depositors and mitigate instability in our banking system.   In addition to the coverage that itprovides to insured deposits, the FDIC has the ability to use its insurance fund and its substantial lines of credit with the Treasury toaddress the risk to the financial system posed by the possible failure of a bank.  As the regulatory community confronted the risks posed by a potential failure of Wachovia Corporation, the Board of the FDIC, the Boardof Governors of the Federal Reserve System, and the Secretary of the Treasury in consultation with the President determined that theyshould invoke the systemic risk exception to the traditional bank resolution process.  We will work together in the future where similar approaches are necessary for the stability of the financial system.When systemic risk determinations are necessary and appropriate in the future, the FDIC will use its authority and its resources, on anopen or closed-bank basis, to protect depositors, guarantee liabilities, facilitate orderly wind downs, mergers, or adopt other stabilizingmeasures.  Increasing Liquidity to Financial MarketsWith regard to liquidity, the Federal Reserve has introduced a series of innovative facilities and policies to enhance liquidity in our markets.  These include the Term Auction Facility, Primary Dealer Credit Facility, Term Securities Lending Facility, and Currency swaps.The Federal Reserve will continue to take a leadership role with respect to liquidity in our markets.   It is committed to using all of the toolsat its disposal to provide the increased liquidity that is now required for the effective functioning of financial markets.  In this regard, the 5/27/2020 Statement by the President’s Working Group on Financial Marketshttps://www.treasury.gov/press-center/press-releases/Pages/hp1177.aspx 2/3authority to pay interest on reserves that was provided by EESA is essential, because it allows the Federal Reserve to expand its balancesheet as necessary to support financial stability while conducting a monetary policy that promotes the Federal Reserve's macroeconomicobjectives of maximum employment and stable prices.The Federal Reserve and the Treasury Department are consulting with market participants on ways to provide additional support for termunsecured funding markets.Cash / Money MarketsBank deposits and money markets funds play an important role in the savings and investing of Americans.   These savings andinvestment vehicles are critical to investor confidence.   They also provide funds for financing activity that is so critically important to ourcredit markets.Last month, the Treasury Department announced a temporary guarantee program for money market mutual funds.   That program beganoperations last Monday.   This action was complemented by the Federal Reserve providing additional liquidity to money market mutualfunds with their Asset Backed Commercial Paper (ABCP) Money Market Mutual Fund (MMMF) Liquidity Facility (AMLF) program, whichhas brought liquidity to the ABCP market.   Today, the Federal Reserve is taking additional actions to enhance the flexibility of bankholding companies to provide support to their bank sponsored funds.In addition, the Securities and Exchange Commission and the FASB issued a clarification regarding the valuation of assets, includingcommercial paper, during such periods of market stress.     In addition, the recent legislation temporarily increases the amount that the FDIC insures in bank and thrift deposits from $100,000 to$250,000.   The legislation also increases the FDIC's ability to borrow from the Treasury if needed.  Collectively these actions should enhance market stability and investor confidence in such fundsMortgage MarketsWe are committed to seeing the housing GSEs serve their public purpose of providing stability, liquidity, and affordability to the housingmarket.   The Federal Home Loan Bank System continues to be an important source of liquidity to the banking system in support ofhousing finance.   To provide critical additional funding to our mortgage markets, Fannie Mae and Freddie Mac are increasing theirpurchases of agency mortgage-backed securities (MBS).  FHFA has directed the two companies to implement such a purchase program immediately.   We also expect each company to continue toincrease its direct support to the mortgage market through their ongoing securitization activities.   Treasury too has established a backstop secured credit facility for the housing GSEs.   In addition, to increase the availability of capital fornew home loans, Treasury expanded the agency MBS purchase program we announced in September.   This will complement the capitalprovided by the GSEs and will help facilitate mortgage availability and affordability.  Market IntegrityConfidence is also enhanced by vigorous law enforcement so that those who invest know there is someone who is looking out for them. The SEC and Commodity Futures Trading Commission (CFTC) bring hundreds of cases every year directed at protecting investors.  Thispast fiscal year the SEC returned approximately $1 billion to injured investors just as it did the year before.  In the past few months, theSEC with others in law enforcement, have restored liquidity to Auction Rate Security investors in the largest securities buyback in thenation's history with tens of billions of dollars of liquidity being restored to tens of thousands of investors.  The CFTC this year obtainedmore than $630 million in penalties against those attempting to manipulate the commodity markets and defraud customers as it continuesto aggressively pursue its ongoing national crude oil investigation aimed at protecting the nation's energy markets.  The SEC and CFTChave dozens of ongoing investigations related to the current market conditions and are using all of their tools to vigorously protectinvestors and maintain the integrity of our capital markets.Clearing and Settlement SystemsRegulators are closely monitoring clearing and settlement systems to ensure their proper functioning as we encourage further centralizedclearing for other financial instruments to bring enhanced transparency and counterparty risk management to those markets.While addressing our challenges, we must also remind investors and lenders that we have a resilient and diverse economy and workforce.  We have faced economic and financial market challenges in the past.   Each time we have worked through them and emerged withstronger financial institutions and regulatory policies.   While it will take time and a lot of hard work, we are confident that this time will beno different.Leadership has been shown with decisiveness and determination by the public sector. Together, we can greatly improve the functioning ofmarkets and move forward to rebuilding our great capital markets. 5/27/2020 Statement by the President’s Working Group on Financial Marketshttps://www.treasury.gov/press-center/press-releases/Pages/hp1177.aspx 3/3 

Statement by the President\u27s Working Group on Financial Markets

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Statement by the President\u27s Working Group on Financial Markets

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