The Legal Position of the Central Bank The Case of the Federal Reserve Bank of New York Thomas C. Baxter, Jr. General Counsel Federal Reserve Bank of New York January 19, 2009 London School of Economics & Political Science

Timeline August 9, 2007 – BNP Paribas freezes redemptions for three investment funds – ECB injects $95 billion into the interbank market August 17, 2007 – Federal Reserve announces Term Discount Window Program December 12, 2007 – Federal Reserve announces Term Auction Facility – Federal Reserve announces Reciprocal Currency Arrangements March 11, 2008 – Federal Reserve announces Term Securities Lending Facility March 14, 2008 – Federal Reserve lends $10-15 billion to JPMorgan Chase to lend to Bear Stearns March 16, 2008 – JPMorgan Chase acquires Bear Stearns

Timeline (continued) March 17, 2008 – Federal Reserve opens Primary Dealer Credit Facility September 7, 2008 – United States bails out Fannie Mae and Freddie Mac September 14, 2008 – Bank of America buys Merrill Lynch September 15, 2008 – Lehman Bros. declares bankruptcy September 16, 2008 – Federal Reserve lends AIG $85 billion

September 19, 2008 – Federal Reserve announces ABCP Money Market Fund Liquidity Facility September 25, 2008 – Washington Mutual seized October 27, 2008 – Federal Reserve opens Commercial Paper Funding Facility November 24, 2008 – Federal Reserve announces Money Market Investing Funding Facility November 26, 2008 – Federal Reserve announces Term Asset-Backed Securities Loan Facility February 2009 – Term Asset-Backed Securities Loan Facility expected to go live Timeline (continued)

Section 13(3) of the Federal Reserve Act In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, by the affirmative vote of not less than five members, may authorize any Federal reserve bank, during such periods as the said board may determine, at rates established in accordance with the provisions of Section 14, subdivision (d), of this Act, to discount for any individual, partnership, or corporation, notes drafts, and bills of exchange when such notes, drafts, and bills of exchange are indorsed or otherwise secured to the satisfaction of the Federal reserve bank: Provided, That before discounting any such note, draft, or bill of exchange for an individual, partnership, or corporation the Federal reserve bank shall obtain evidence that such individual, partnership, or corporation is unable to secure adequate credit accommodations from other banking institutions. All such discounts for individuals, partnerships, or corporations shall be subject to such limitations, restrictions, and regulations as the Board of Governors of the Federal Reserve System may prescribe.

FRBNY Fed Senior Tranche A Loan up to $29.0 bn $29.0 bn P & I on Tranche A Loan + Residual JPMorgan Tranche B Loan $1.0 bn Maiden Lane LLC $1.0 bn P & I on Tranche B Loan TRS $30 bn$30 bn market value of assets and hedges Derivatives with Various Counterparties Derivatives BlackRock [Investment Manager] Residential Loans Cash Securities Commercial Loans State Street [Custodian/Administrator/ Collateral Agent] JPMorgan Maiden Lane LLC Master Transaction Diagram

Statement of Condition of All Federal Reserve Banks December 31, 2008 ($ billions) Assets Aug. 08, 07Dec. 31, 08LiabilitiesAug. 8, 07Dec. 31, 08 Securities Treasuries notes & bonds bills Federal Agency 0 20 Repos Conventional 19 0 Single-tranche 28-day 0 80 Loans 0644 TAF 0450 Other Credit (AIG) 0 39 PDCF 0 37 PCF/SCF 0 94 AMLF 0 24 Maiden Lane LLC 0 27 Maiden Lane LLC II 0 20 Maiden Lane LLC III 0 27 CPFF 0334 MMIFF 0 0 Other Assets Reserve Balances of Banks Excess Balances Required Op Balances 2 22 Federal Reserve Banknotes Treasury Balances at FRB 5106 Treasury SFP 0259 Foreign RP Pool Reverse RPs 0 0 Other Deposits 0 21 Other Liabilities Capital Total Assets Total Liabilities & Capital