Fed’s Crisis Transcripts to Be Released

Update:  the transcripts were released this morning (Jan. 18) and are available here.

Any day now, the transcripts from the 2007 Federal Reserve Open Market Committee meetings will be released to the public (FOMC transcripts are withheld for five years).  These transcripts should give us some additional insight into the discussions that were occurring around the outbreak of the global financial crisis and help fill in our understanding of the reasoning behind the Fed’s initial response.  See here for the detailed breakdown of what we already know about the Fed’s “unconventional” lender-of-last-resort responses, including tallies of all the loans and asset purchases made under various special programs and facilities, and breakdowns of the support provided to major recipients.

The Federal Reserve operated with a large degree of discretion during the course of the crisis (under the auspices of Section 13(3) of the Federal Reserve Act) and Dodd-Frank allegedly places some new limits on those powers—while also enshrining new regulatory responsibilities for the Fed.  On net, what does this all mean for the Federal Reserve’s power and discretion in a post-Dodd-Frank era?  In a new one-pager, Bernard Shull assesses the question and expresses some skepticism about the idea that the Fed will be meaningfully constrained by the new rules.

For instance, about Dodd-Frank’s restrictions on the Fed’s ability to provide credit extensions to nonbanks Shull writes:

… it does not permit the Fed to target specific companies, as it did with AIG in the recent crisis. It does permit the extension of credit within a “broad-based” program, albeit with Treasury approval. However, this is a weak constraint. The Fed could circumvent this limitation by organizing private consortiums, as it did for Long-Term Capital Management in 1998. “Circumvention” may be the wrong word, as the executive branch has been at least as determined as the Fed to extend credit to nonbanks in the face of a systemic threat.

Read the one-pager here.  For a longer treatment, see Shull’s working paper.