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

[David Farber <dave () farber net>]

Begin forwarded message:

From: Tobin Maginnis <ptm () pix cs olemiss edu>
Date: October 4, 2008 2:58:03 PM EDT
To: dave () farber net
Subject: Re: [IP] 2004: The FED Reserve creates NEWBANK in event of  
banking failure (for IP)

As you may know, there are only two banks that act as a clearing house  
for US Treasuries, J.P. Morgan Chase and the Bank of New York (BONY).

As you may also know, several Bank of New York executives moved $7.5  
billion from Russia to accounts at the Bank via unlicensed wire  
transfers during the 1990s. In late 2005, The Bank of New York agreed  
to pay $38 million in fines as part of a non-prosecution agreement  
that the Bank signed with the U.S. Department of Justice. In this  
agreement BONY acknowledged its guilt and as a result, the Russian  
Federal Customs Service is now suing The Bank of New York over an  
illegal money laundering scheme, using the US's RICO act, which allows  
tripling the $7.5 billion to $22.5 billion.
http://www.russianbanksuit.com/

There is also significant concern that if this judgment where to be  
assessed, that BONY would crumble. We also know that J.P. Morgan Chase  
hopes to shore up it's balance sheet with FDIC insured WaMu deposits.  
If either of these banks stumble: "The combination of the capital,  
liquidity, and reputational risk factors for such a huge private bank  
that is so important to the national and international financial
markets suggest that ... it could result in a systemic event."
http://www.russianbanksuit.com/Ken_Thomas_letter_to_Ben_Bernankere_re_BONY.pdf

In other words, I suspect we will see a lot more of the Fed's private  
NewBank as The Federal Reserve uses its new found wealth to  
concentrate more of the government's financial power into private hands.

Regards,
Tobin Maginnis
=====================
David Farber wrote:
> 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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