vol. XX no. 3
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Through
the term auction facility, the Fed auctions term funds to depository
institutions every other week. It works like this: the Board of
Governors posts the bid terms for the auction. As the bidding starts,
each Reserve Bank begins to fill orders. Bids are then aggregated
across all 12 Federal Reserve Banks and sorted from highest to lowest
until all bids are filled or the end of the money allotted for the
auction is reached. The last bid to make it into the auction before
funds are depleted, the stop-out rate, is the rate that all the winning
bidders receive.
Bowling manages both operational and credit
risks for these programs at the Atlanta Fed. For operations, the
increase in volume means more loans to process, and new programs
necessitate bringing staff up to speed quickly. To mitigate those
risks, Bowling has cross-trained and reallocated staff from other units
to help on the discount window – as he says, “to get more eyes on the
data and data entry.” As for the credit risk, the discount window has
more financial institutions to evaluate and monitor. Although all
lending is backed by collateral, there remains a challenge in
accurately valuing the collateral in a changing environment. New
automated data tools are helping, and new financial analysts have
joined the discount window team.
Although Bowling doesn’t know
what the next crisis will be, he does know the volume and complexity of
loans at the discount window will be higher than normal for the
foreseeable future. For now, his job is to hold the course.
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