Why we need an 'accord' for Federal Reserve credit policy. (followed by a commentary on article by E.J. Stevens) (Federal Credit Allocation: Theory, Evidence, ... from: Journal of Money, Credit & Banking

by Marvin Goodfriend

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This digital document is an article from Journal of Money, Credit & Banking, published by Ohio State University Press on August 1, 1994. The length of the article is 5811 words. The page length shown above is based on a typical 300-word page. The article is delivered in HTML format and is available in your Amazon.com Digital Locker immediately after purchase. You can view it with any web browser.

From the supplier: This paper proposes Accords that would implement principles for three prominent Federal Reserve credit policies. The basic idea is that Congress has provided the Fed with the independence necessary to carry out central bank functions effectively, and the Fed should perform only those functions. FDICIA already partially incorporates an Accord to limit the cost that liquidity assistance potentially imposes on the deposit insurance fund. That Accord may have to be strengthened, however, to more effectively restrict liquidity assistance to institutions that have become insolvent on a market value basis. Since sterilized foreign exchange intervention has little more than a temporary effect on the exchange rate, the Fed and the Treasury should reach an Accord to keep such intervention to a minimum. Foreign exchange warehousing could also be ended by a simple agreement between the Fed and the Treasury. But Congress should explicitly limit the potential abuse that warehousing exemplifies: the use of Fed credit policy for off-budget funding without explicit Congressional authorization. Lastly, a policy of transferring the Fed surplus to the Treasury has budget consequences in appearance only and could set a harmful precedent for further stripping the Fed of assets that would ultimately weaken the central bank's independence and its ability to conduct policy. (Printed by permission of the publisher)

Citation Details
Title: Why we need an 'accord' for Federal Reserve credit policy. (followed by a commentary on article by E.J. Stevens) (Federal Credit Allocation: Theory, Evidence, and History)
Author: Marvin Goodfriend
Publication: Journal of Money, Credit & Banking (Refereed)
Date: August 1, 1994
Publisher: Ohio State University Press
Volume: v26 Issue: n3 Page: p572(13)

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