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Direct Purchases of U.S. Treasury Securities by Federal Reserve Banks

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  • Kenneth D. Garbade

Abstract

From time to time, and most recently in the April 2014 meeting of the Treasury Borrowing Advisory Committee, U.S. Treasury officials have questioned whether the Treasury should have a safety net that would allow it to continue to meet its obligations even in the event of an unforeseen depletion of its cash balances. (Cash balances can be depleted by an unanticipated shortfall in revenues or a spike in disbursements, an inability to access credit markets on a timely basis, or an auction failure.) The original version of the Federal Reserve Act provided a robust safety net because the act implicitly allowed Reserve Banks to buy securities directly from the Treasury. This post reviews the history of the Fed’s direct purchase authority. (A more extensive version of the post appears in this New York Fed staff report.)

Suggested Citation

  • Kenneth D. Garbade, 2014. "Direct Purchases of U.S. Treasury Securities by Federal Reserve Banks," Liberty Street Economics 20140929, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:86981
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    References listed on IDEAS

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    1. Garbade, Kenneth D., 2012. "Birth of a Market: The U.S. Treasury Securities Market from the Great War to the Great Depression," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262016370, April.
    2. Richard W. Lang, 1979. "TTL note accounts and the money supply process," Review, Federal Reserve Bank of St. Louis, vol. 61(Oct), pages 3-14.
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    3. Feldberg, Greg, 2020. "Monetization of Fiscal Deficits and COVID-19: A Primer," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 2(4), pages 1-35, April.

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    More about this item

    Keywords

    liquidity buffer; safety net; direct purchases;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G2 - Financial Economics - - Financial Institutions and Services

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