Central Bank Liquidity Tools - FEDERAL RESERVE BANK of NEW YORK

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Central Bank Liquidity Tools

February 19-20, 2009

On February 19-20, 2009, the Federal Reserve Bank of New York will host a conference that brings together academics, market participants, and policymakers to discuss the tools central banks use to provide liquidity to financial institutions and markets. Overview In response to the recent market turmoil, central banks have designed a variety of new tools for supplying liquidity to financial institutions. The Federal Reserve, for example, has introduced several programs--the Term Auction Facility, the Term Securities Lending Facility, and the Primary Dealer Credit Facility--since December 2007, while enhancing traditional tools such as the discount window and open market operations. In addition, the European Central Bank and the Swiss National Bank have conducted liquidity-providing operations in U.S. dollars and established foreign exchange swap lines with the Fed. Central banks have also increased the range of collateral they accept in open market operations and lengthened the maturity terms of their liquidity provision. These changes raise many questions. What are the effects of different methods of liquidity provision on financial markets, on market participants, and on the broader economy? Do the new policy tools constitute a fundamental change to the ways that central banks have traditionally provided liquidity to markets? Would central banks be well-served to include these facilities among their regular set of policy tools? Audience The conference is open to academics and other researchers in the fields of economics and finance. It is closed to the media. Conference Location Federal Reserve Bank of New York 33 Liberty Street 12th Floor Conference Center New York, NY 10045 Conference Organizers Seth Carpenter Spence Hilton Todd Keister Patricia Mosser Asani Sarkar

Agenda


Thursday, February 19

8:15 a.m.	Continental Breakfast

8:45 a.m.	Opening Remarks Patricia Mosser, Senior Vice President and Acting SOMA Manager

9:00 a.m.	Session I: Overview of Recent Problems in Liquidity Provision Chair:Tobias Adrian, FRBNY Central Bank Tools and Liquidity Shortages Stephen G. Cecchetti, Bank for International Settlements Bengt Holmstrom, Massachusetts Institute of Technology

10:15 a.m.	Coffee Break

10:30 a.m.	Session II: Funding Liquidity and Market Liquidity Chair: Til Schuermann, FRBNY Leverage, Moral Hazard, and Liquidity Viral Acharya, New York University's Stern School of Business, and London Business School S. (“Vish”) Viswanathan, Duke University Presentation >> Discussant: Patrick Bolton, Columbia University Interbank Market Liquidity and Central Bank Intervention Franklin Allen, University of Pennsylvania Elena Carletti, European University Institute Douglas Gale, New York University Presentation >> Discussant: Adriano A. Rampini, Duke University Discussion >> Bank Liquidity, Interbank Markets, and Monetary Policy Xavier Freixas, Universitat Pompeu Fabra Antoine Martin, Federal Reserve Bank of New York David Skeie, Federal Reserve Bank of New York Presentation >> Discussant: Franklin Allen, University of Pennsylvania Discussion >>

12:30 p.m.	Lunch

2:00 p.m.	Session III: Policy Responses to Illiquidity Chair: James J. McAndrews, FRBNY Illiquidity and Interest Rate Policy Douglas W. Diamond Raghuram G. Rajan, University of Chicago and NBER Presentation >> Discussant: Guido Lorenzoni, MIT Discussion >> Liquidity Hoarding and Interbank Market Spreads: The Role of Counterparty Risk Florian Heider, European Central Bank Marie Hoerova, European Central Bank Cornelia Holthausen, European Central Bank Presentation >> Discussant: Gaetano Antinolfi, Washington University Discussion >>

3:20 p.m.	Coffee Break

3:40 p.m.	Session IV: Collateral and Haircuts Chair: Simon M. Potter, FRBNY Rollover Risk and Market Freezes Viral Acharya, New York University's Stern School of Business, and London Business School Douglas Gale, New York University Tanju Yorulmazer, Federal Reserve Bank of New York Presentation >> Discussant: Michael Manove, Boston University Discussion >> Central Bank Haircut Policy James Chapman, Bank of Canada Jonathan Chiu, Bank of Canada Miguel Molico, Bank of Canada Presentation >> Discussant: Mitchell Berlin, Federal Reserve Bank of Philadelphia Discussion >>

5:00 p.m.	Reception

6:00 p.m.	Dinner (by Invitation Only) Keynote Speaker: John Geanakoplos, Yale University Liquidity, Default, and Crashes Solving the Present Crisis and Managing the Leverage Cycle


Friday, February 20

8:30 a.m.	Continental Breakfast

9:00 a.m.	Session V: Empirical Evaluation of Central Bank Liquidity Programs -I Chair: Seth B. Carpenter, Board of Governors, FRB Do Central Bank Liquidity Facilities Affect Interbank Lending Rates? Jens H. E. Christensen, Federal Reserve Bank of San Francisco Jose A. Lopez, Federal Reserve Bank of San Francisco Glenn D. Rudebusch, Federal Reserve Bank of San Francisco Presentation >> Discussant: Pierre Collin-Dufresne, Columbia University Discussion >> Repo Market Effects of the Term Securities Lending Facility Michael Fleming, Federal Reserve Bank of New York Warren Hrung, Federal Reserve Bank of New York Frank Keane, Federal Reserve Bank of New York Presentation >> Discussant: Lasse H. Pedersen, New York University's Stern School of Business Discussion >>

10:20 a.m.	Coffee Break

10:40 a.m.	Session VI: Empirical Evaluation of Central Bank Liquidity Programs -II Chair: James Vickery, FRBNY Funding Liquidity Risk: Definition and Measurement Mathias Drehmann, Bank for International Settlements Kleopatra Nikolaou, European Central Bank Presentation >> Discussant: Marie Hoerova, European Central Bank Discussion >> Provision of Liquidity through the Primary Credit Facility during the Financial Crisis: A Structural Analysis Erhan Artuc, Koc University Selva Demiralp, Koc University Presentation >> Discussant: Carolyn Wilkins, Bank of Canada Discussion >>

12:00 p.m.	Lunch

1:15 p.m.	Panel Discussion Chair: Patricia Mosser, FRBNY Louis Crandall, Wrightson ICAP Presentation >> Andrew W. Lo, Massachusetts Institute of Technology Paul Mercier, ECB Lasse H. Pedersen, New York University's Stern School of Business Presentation >> W. Alexander Roever, J.P. Morgan Chase

2:30 p.m.	Adjourn