2004: The FED Reserve creates NEWBANK in event of banking failure (for IP)

[David Farber <dave () farber net>]

Begin forwarded message:

From:
Date: October 4, 2008 3:44:59 AM EDT
To: dave () farber net
Subject: 2004: The FED Reserve creates NEWBANK in event of banking  
failure (for IP)


Dave:

Please anonymize again based on my employer.


I was thinking about this crisis that we are currently experiencing
and recalled a Federal Reserve press release I read from 2004 that
caused my hair to stand up:

http://www.federalreserve.gov/boarddocs/Press/other/2004/20040130/

Release Date: January 30, 2004
The Federal Reserve Board announced Friday that it has established a  
private-sector Working Group on NewBank Implementation to further  
develop the concept of a dormant bank that would be available for  
activation, if necessary, to clear and settle U.S. government  
securities.

In a report released January 7, a previous private-sector panel, the  
Working Group on Government Securities Clearance and Settlement,  
recommended nine steps to mitigate risks to the financial system from  
the interruption or termination of the services of a clearing bank as  
the result of either operational or non-operational problems.
_____________________________________

This release was followed-up by another in 2005:

http://www.federalreserve.gov/BoardDocs/Press/other/2005/20051215/

Release Date: December 15, 2005
The Federal Reserve Board on Thursday released the report of the  
private-sector Working Group on NewBank Implementation and endorsed  
its recommendations for the creation of a dormant bank (NewBank) that  
would be available for activation to clear and settle U.S. government  
securities. Such activation would occur if a credit or legal problem  
caused the market to lose confidence in an existing clearing bank, and  
no well-qualified bank stepped forward to purchase the exiting bank's  
clearing business.

The Working Group was established by the Board in January 2004 to  
further develop the concept of NewBank that a previous panel (the  
Working Group on Government Securities Clearance and Settlement) had  
identified as a promising private-sector contingency plan for the  
sudden involuntary exit of one of the two clearing banks for non- 
operational reasons.
_____________________________________

I passed this around to some reporters at the time -- none of them  
could understand
what type of event might create the need for The Fed to implement the  
"Newbank" plan.
I think we are starting to understand why the need may arise now.

Makes one wonder how long The Fed may have known we may get into this  
recent crisis --
and how much worse it might actually get.







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