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Implementation of Open Market Operations in a Time of Transition Simon Potter – EVP, Markets Group Remarks to the Japan Center for Economic Research – Tokyo, Japan September 25, 2014 Figure 1: Evolution of the Federal Reserve’s Balance Sheet Assets $ Billions 5,000 $ Billions 5,000 Treasuries 4,500 4,000 Liabilities and Capital Agency Debt Agency MBS 4,500 FR Notes Reserve Balances Other Liabilities** + Capital 4,000 Other Assets* 3,500 3,500 3,000 3,000 2,500 2,500 2,000 2,000 1,500 1,500 1,000 1,000 500 500 0 2007 2008 2009 2010 2011 2012 2013 2014 * Includes DW, crisis facilities, central bank liquidity swaps, foreign portfolio, and unamortized premiums and discounts. Source: Board of Governors of the Federal Reserve System. 0 2007 2008 2009 2010 2011 2012 2013 2014 ** Includes Treasury accounts and reverse repos. Figure 2: Federal Funds and IOER Rates Percent FF Target Range FF Effective Rate IOER Rate 0.30 0.25 0.20 0.15 0.10 0.05 0.00 2009 2010 2011 2012 2013 2014 Note: Data through August 2014. Source: Board of Governors of the Federal Reserve System; Federal Reserve Bank of New York. Figure 3: Timeline of Asset Purchase Programs $ Billions SOMA Domestic Securities Holdings (Par) 5,000 LSAP1 LSAP2 MEP LSAP3 4,500 Start of LSAP3 for agency MBS 4,000 3,500 3,000 2,500 2,000 Reinvest agency MBS/debt in MBS 1,500 Reinvest agency MBS/debt 1,000 in Treasuries 500 0 2007 2008 2009 2010 2011 Note: Data through August 2014. Source: Board of Governors of the Federal Reserve System. 2012 2013 2014 Figure 4: SOMA Portfolio Risk Measures Duration and Ten-Year Equivalents of SOMA Portfolio $ Billions 3,500 Years Ten-Year Equivalents - Total SOMA Portfolio (LHS) Duration - SOMA Treasury Portfolio (RHS) 9 3,000 8 2,500 7 2,000 6 1,500 5 1,000 4 500 0 2009 3 2010 2011 Note: Data through August 2014. Source: Federal Reserve Bank of New York. 2012 2013 2014 Figure 5: Secured Overnight Interest Rates Treasuries – DTCC GCF Repo Index® ON RRP Fixed Rate Basis Points 30 FOMC authorizes extension of ON RRP exercise 25 20 15 10 5 0 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Note: Data through August 2014. Source: Federal Reserve Bank of New York; The Depository Trust & Clearing Corporation. Figure 6: ON RRP Exercise Take-up by Counterparty Type $ Billions 350 300 250 FOMC authorizes extension of ON RRP exercise MMFs GSEs Primary Dealers Banks 200 150 100 50 0 Sep-13 Nov-13 Jan-14 Note: Data through June 2014. Source: Federal Reserve Bank of New York. Mar-14 May-14 Figure 7: ON RRP Exercise Share of Take-up by Counterparty Type Non-Quarter-End Dates Quarter-End Dates MMFs-Gov 60% 49% MMFs-Prime 40% MMFs-Gov MMFs-Prime 22% GSEs 10% PDs 6% Banks 2% Note: Data through August 2014. Source: Federal Reserve Bank of New York. 7% GSEs 3% PDs 1% Banks