Russia's and Armenia's central securities depositories
will have a positive impact on the development of our countries' financial markets.
Payment of explicit interest on contractual clearing balances could result in an increase in the level of these balances; some depositories
are currently constrained in the amount of such credit-earning balances they can hold because of their limited use of Federal Reserve services.
Several measures taken by the Federal Reserve also have helped to foster stability in the funds market, including improvements in the timeliness of account information provided to depository institutions, more frequent open market operations, which are increasingly geared to daily payment needs rather than two-week-average requirements, a shift to lagged reserve requirements, which gives depositories
and the Federal Reserve advance information on the demand for reserves, and improved procedures for estimating reserve demand.
The absence of interest on demand deposits is no bar to the movement of funds from depositories
with surpluses--whatever their size or location--to the markets where the funding can be profitably employed.
However, some depositories
may purchase such mortgages to help them meet their obligations under the Community Reinvestment Act.
The Federal Reserve Board's Regulation A defines three discount window programs, each serving a distinct purpose: (1) adjustment credit, to help depository institutions meet unexpected short-term liquidity needs; (2) seasonal credit, to assist smaller institutions in managing liquidity needs that arise from regular swings in loans and deposits; and (3) extended credit, to help depositories
that have somewhat longer-term liquidity needs resulting from exceptional circumstances.
Twenty percent of the families receiving conventional home purchase loans through depositories
have low incomes, compared with 15 percent of families receiving them from independent mortgage companies.
, the Reserve Banks provide payment-related services--handling the government checking account and disbursements and collections.
Depository credit remains especially weak, reflecting not only muted private loan demands, but also continued caution among depositories
The reduced depository intermediation stemmed from emerging problems of asset quality, which, in turn, prompted both the pulling back of depositories
from lending and responses by regulators that reinforced those tendencies.
Other statutes and regulations, however, apply only to banks and other insured depositories
because of the special and critical functions they perform: (1) their role in the payments mechanism, which facilitates payments by businesses, governments, and consumers domestically and throughout the world; (2) their role as a chartered recipient of federally insured deposits providing a source of savings and investment to the general public that is free of the risk of default, up to $100,000; (3) their role as important credit intermediaries for all segments of society; and not least (4) their importance as the principal vehicle through which the nation's monetary policy is implemented.
With respect to the question of whether supervisors would have concerns about insured depositories
participating in such securitization activity, either as investors or issuers, our view is that it is acceptable if it is done in a safe and sound manner.
Statement by Richard Spillenkothen, Director, Division of Banking Supervision and Regulation, Board of Governors of the Federal Reserve System, and Donald H. Wilson, Financial Markets Officer, Federal Reserve Bank of Chicago, before the Subcommittee on Policy, Research, and Insurance of the Committee on Banking, Finance and Urban Affairs, U.S. House of Representatives, May 6, 1992