1 Regulation A defines a “depository institution” as including, among other things, an insured bank, a savings bank or mutual
savings bank, or a savings association, each as defined in Section 3 of the Federal Deposit Insurance Act, or an insured credit
union, as defined in Section 101 of the Federal Credit Union Act.
2 Extensions of Credit by Federal Reserve Banks, Federal Reserve System, 12 C.F.R. Part 201 (May 21, 1999).
[11015]
May 27, 1999
TO: ACCOUNTING/TREASURERS COMMITTEE No. 17-99
MONEY MARKET FUNDS ADVISORY COMMITTEE No. 7-99
SEC RULES COMMITTEE No. 42-99
RE: FEDERAL RESERVE BANK PROPOSES SPECIAL Y2K LENDING PROGRAM
______________________________________________________________________________
The Board of Governors of the Federal Reserve System recently proposed amendments to its
Regulation A to establish a special lending program under which Federal Reserve Banks may extend
credit to depository institutions1 to ease liquidity pressures during the century date change period. Under
the proposed Special Liquidity Facility, Federal Reserve Bank credit would be more freely available to
eligible institutions, albeit at an interest rate somewhat above depository institutions’ normal cost of
funds (i.e., 1.5 percent over the Federal Open Market Committee’s targeted federal funds rate). Special
Liquidity Facility loans would be available from November 1, 1999 to April 7, 2000. The Board’s
proposal is attached and it is summarized below.2
Comments on the Board’s proposal are due by July 2, 1999. If there are issues you would like
the Institute to consider addressing in a possible comment letter, please contact Barry E. Simmons at
(202) 326-5923 (phone), (202) 326-5839 (fax), or simmonbe@ici.org (e-mail) by Friday, June 11, 1999.
The proposed amendments to Regulation A would make it relatively easy for eligible institutions
to borrow funds during the specified time period by not imposing most of the conditions applicable to
other discount window loans, as follows.
First, depository institutions would not be required to exhaust alternative liquidity resources
before obtaining a Special Liquidity Facility loan. Second, there would be no usage restrictions imposed;
thus, depository institutions could use a Facility loan not only to meet funding shortfalls but also to
make loans or investments. Third, depository institutions would not be required to repay a Facility loan
promptly. In fact, a Facility loan may be outstanding for a considerable period – that is, until the
program expires.
The proposal also notes that the collateral requirements for Special Liquidity Facility credit
would be identical to those for other discount window loans, all of which must be fully collateralized to
the satisfaction of the Reserve Bank. Finally, credit under the Special Liquidity Facility is discretionary
and would be available only to depository institutions in sound financial condition, and thus would not
be available, for example, to depository institutions that are undercapitalized.
Barry E. Simmons
Assistant Counsel
Attachment