The 2007-2009 financial crisis was a systemic collapse – a sudden collapse of asset prices and the failure or near-failure/rescue of almost all large financial institutions. The United States has not witnessed a systemic collapse since the 1930s, and many thought it was impossible for the United States to have such an event, given the apparent advances in risk management that preceded it. However, the collapse occurred and was very large, damaging to the real economy and extremely expensive to resolve. A desire not to let such an event happen again pervades the body politic, indeed is demanded by many. But preventing such an event is neither easy nor costless. Financial crises typically follow large economic booms. While such booms may be characterized as bubbles in retrospect, they are extremely popular while they are occurring. The Federal Reserve has long seen its mission against inflation “to take away the punch bowl just when the party is getting good”; if it now becomes the systemic risk regulator it must be prepared to do the same against rising systemic risk, using tools beyond monetary policy. This is likely to be unpopular unless the ground is extremely well prepared and broadly understood. We return to this threshold problem in more detail below.
Federal Reserve Bank of New York (“FRBNY”) is extending to suppliers an invitation to participate in an Sentiment Analysis And Social Media Monitoring Solution RFP bid process. The intent is to establish a fair and equitable partnership with a market leader who will who gather data from various social media outlets and news sources and provide applicable reporting to FRBNY. This Request for Proposal (“RFP”) was created in an effort to support FRBNY’s Social Media Listening Platforms initiative.
The rapid growth of the market-based financial system since the mid-1980s changed the nature of financial intermediation in the United States profoundly. Within the market-based financial system, “shadow banks” are particularly important institutions. Shadow banks are financial intermediaries that conduct maturity, credit, and liquidity transformation without access to central bank liquidity or public sector credit guarantees. Examples of shadow banks include finance companies, asset-backed commercial paper (ABCP) conduits, limited-purpose finance companies, structured investment vehicles, credit hedge funds, money market mutual funds, securities lenders, and government-sponsored enterprises. Shadow banks are interconnected along a vertically integrated, long intermediation chain, which intermediates credit through a wide range of securitization and secured funding techniques such as ABCP, asset-backed securities, collateralized debt obligations, and repo. This intermediation chain binds shadow banks into a network, which is the shadow banking system. The shadow banking system rivals the traditional banking system in the intermediation of credit to households and businesses. Over the past decade, the shadow banking system provided sources of inexpensive funding for credit by converting opaque, risky, long-term assets into money-like and seemingly riskless short-term liabilities. Maturity and credit transformation in the shadow banking system thus contributed significantly to asset bubbles in residential and commercial real estate markets prior to the financial crisis.
Maiden Lane LLC, Maiden Lane II LLC, Maiden Lane III LLC Balance Sheets from the Federal Reserve Bank of New York as of January 29, 2010.
We have audited the accompanying consolidated statement of financial condition of Maiden Lane LLC (a Special Purpose Vehicle consolidated by the Federal Reserve Bank of New York) and subsidiaries (the “LLC”) as of December 31, 2008, and the related consolidated statements of income and cash flows for the period from March 14, 2008 to December 31, 2008. These financial statements are the responsibility of the LLC’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
This agreement, made as of the 25th day of November, 2008, by and among the Federal Reserve Bank of New York (“FRB-NY”), BlackRock Financial Management, Inc. (the “Manager”) and Maiden Lane III LLC (the “Borrower”), sets forth the terms under which the Manager shall provide investment management services to FRB-NY (the “Agreement”).
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Semiannual Report to Congress: October 1, 2008–March 31, 2009