1. Federal Reserve Bank of San Francisco The Federal Reserve System Discount Window Credit Facilities Western Independent Bankers February 11, 2009 Rick Miller Credit Risk Management Director

2. 2 Presentation Outline Background information Overview of Discount Window lending programs Questions

3. 3 The Federal Reserve is the U.S. Central Bank Serves as the “bank” for all segments of the banking system: commercial banks, thrifts, and credit unions

4. 4 System Structure - Districts

5. 5 Background Information Statutory and Regulatory Considerations -Federal Reserve Act -Monetary Control Act of 1980 -Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) -Regulations A and D

6. 6 Discount Window Functions Act as a safety valve in relieving pressures in reserve markets Backup source of liquidity for individual institutions Relieve liquidity strains in the banking system Assure the basic stability of money markets

7. 7 Discount Window Credit Programs Primary Credit generally available for short periods of time, usually overnight; flexible with smaller institutions Secondary Credit may be available to institutions not in satisfactory financial condition Seasonal Credit available to small institutions with a pronounced seasonal funding need.

8. 8 Enhance monetary policy implementation Reduce stigma in coming to Window Simplify administration Improve consistency across Federal Reserve System Specifically supported by inter-agency statement dated July 23, 2003 Objectives of Primary & Secondary Credit Programs

9. 9 Eligibility Primary Credit CAMELS 1, 2, or 3 At least adequately capitalized Supplementary information supports sound condition Secondary Credit Not eligible for Primary Credit Discretion of the Reserve Bank

10. 10 Primary vs. Secondary Credit

11. 11 Primary vs. Secondary Credit

12. 12 Seasonal Borrowing Program Established in early 1970s to assist smaller institutions Must demonstrate seasonal pattern Qualifying institutions are typically in agricultural or tourist areas. Institutions with deposits over $500 million will not qualify

13. 13 Seasonal Borrowing Program Any single loan under the program may be for up to 30 days May access the program for 9 months out of a 12 month period Market rate adjusted every two weeks based on average Fed funds rate and 90 day CD rate

14. 14 Recent Changes to Federal Reserve Liquidity Provisions Adjustments to Primary Credit Facility Term Auction Facility Primary Dealer Credit Facility Term Secured Lending Facility

15. 15 Primary Credit Program Adjustments to Primary Credit Facility -Spread of lending rate to Fed Funds Rate cut to 50 basis points in August 2007 and to 25 basis points in March 2008 -Loan terms extended to 30 days in August 2007 and to 90 days in March 2008 and renewable -From August 2007 to May 2008 Fed Funds Rate and Discount Rate lowered 8 times

16. 16 Term Auction Facility Established December 12, 2007 Bi-weekly auctions of 28-day Discount Window credit Same collateral as for primary credit Competitive bid process with highest bid rates being awarded $150 billion auctioned currently In place at least until market conditions improve

17. 17 Primary Dealer Credit Facility Established March 16, 2008 A “standing facility” available to primary dealers Overnight lending Rate is same as primary credit rate Eligible collateral includes a broad range of investment-grade debt securities

18. 18 Term Securities Lending Facility (TSLF) Established March 11, 2008 Available to primary dealers Like TAF, TSLF is an auction facility Auctions relatively illiquid securities in exchange for Treasury securities Weekly auctions of security lending operations for 28-day terms Reserves neutral

19. 19 Actions Taken by Board of Governors Extended the Primary Dealer Credit Facility and the Term Securities Lending Facility through January 30, 2009 Introduced auctions of options on $50 billion of draws on the Term Securities Lending Facility Introduced an 84-day Term Auction Facility (TAF) loan as a complement to the 28-day loan Increased the Fed’s swap line with the European Central Bank (ECB) to $55 billion from $50 billion Announced a new collateral requirement for advances of more than 28-days in maturity (both term-auction credit and term primary credit but not seasonal credit)

20. 20 Access to the Window Documentation To borrow from the Discount Window : Authorizing Resolutions for Borrowers Letter of Agreement Official OC-10 Authorization List Certificate Collateral All advances must be secured by acceptable collateral.

21. 21 Wide Range of Collateral Securities -Treasury -Agency -Municipal -ABS -Corporate Bonds Loans -Consumer -Commercial & Industrial -Commercial Real Estate -Construction -Raw Land

22. 22 Borrower-In-Custody Program Pledged loan collateral held on premises In acceptable financial condition Identify pledged assets Provide monthly list of pledged loans Expect periodic collateral inspections

23. 23 Contingency Planning Essential For All Banking Organizations Understand funding sources and availability Have written formal contingency funding arrangements in place Test periodically

24. 24 The Federal Reserve System Ultimate liquidity provider to the market and individual banking organizations

25. 25 Discount Window Website www.frbdiscountwindow.org Summary of Credit programs & Detailed Collateral Information Federal Reserve Board Press Releases Frequently Asked Questions (FAQs) Operating Circular 10 Acceptable Collateral and Margin Table Links to each Reserve Bank

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27. 27 Federal Reserve Bank of San Francisco Contacts Rick Miller, Director, 415 974 2974 Javier Jerez, Senior Manager, 415 974 2500 David Xu, Manager 415 974 2218