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Posted by warren mosler (208.49.176.241) on 08:57:27 10/22/07
In Reply to: Sivs become favored asset posted by Winslow R.
Banks don't decide to hold or not hold assets as investments based on whether or not the Fed will accept that collateral at the window.
What this hopes to do is facilitate the orderly 'repricing of risk' and prevent dislocations due to allocation shifts being accelerated due to funding issues.
The repriced assets will find new homes one way or another. Smaller institutions need to hold board meetings, get approvals, etc. before investing. It's all happening. Risk is being repriced and relocated at the new, higher prices.
I would do more to facilitate this process, and it has nothing to do with the fed funds rate.
: New York Fed Takes Step To Bolster Credit Market
: By Greg Ip
: Word Count: 780
: In another step aimed at unfreezing the commercial paper market, the Federal Reserve Bank of New York clarified its discount window rules with the effect of enabling banks to pledge a broader range of commercial paper as collateral.
:
: Under the clarification, issued verbally by New York Fed officials to market participants in the last day, banks may pledge asset-backed commercial paper for which they also provide the backup lines of credit.
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: http://online.wsj.com/article/SB118798079732208114.html?mod=hpp_us_whats_news
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