Dodd-Frank Act - White Paper - Government Accountability Office - Federal Reserve Bank Emergency Assistance Programs - July 2011

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Opportunities Exist to Strengthen Policies and Processes for Managing Emergency Assistance
October 2011
Title XI of the Dodd-Frank Act mandated that the GAO conduct a one-time audit of the Federal Reserve's emergency loan programs during the crisis period of 2007-09. The audit objectives included a review of:

  • the basis and purpose for its authorization, as well as accounting and financial reporting internal controls;
  • the use, selection, and payment of vendors;
  • management of conflicts of interest;
  • policies in place to secure loan repayment; and
  • the treatment of program participants.


  • Loans outstanding for the emergency programs peaked at more than $1 trillion in late 2008.
  • The Reserve Banks, primarily FRBNY, awarded 103 contracts worth $659.4 million from 2008 through 2010 to help carry out their emergency activities.
  • Most of the contracts, including 8 of the 10 highest-value contracts, were awarded noncompetitively, primarily due to exigent circumstances.
  • Because Reserve Banks lacked specific procedures that staff should follow to exercise discretion and document actions to restrict higher-risk eligible borrowers for a few programs, the Federal Reserve System lacked assurance that Reserve Banks applied such restrictions consistently.


  • Revise Reserve Banks’ formal acquisition policies and procedures to provide additional guidance on the steps staff should follow in exigent circumstances, specifically to address soliciting as much competition as possible, limiting the duration of noncompetitive contracts to the period of the exigency, and documenting efforts to promote competition.
  • As part of the Federal Reserve System’s planned review of the Reserve Banks’ codes of conduct given their expanded statutory authority under the Dodd-Frank Act, consider how Reserve Banks’ experience managing employee conflicts of interest, including those related to certain nonbank institutions that participated in the emergency programs, could inform the need for changes to the Reserve Banks’ conflict policies.
  • Finalize a comprehensive policy for FRBNY’s management of risks related to vendor conflicts of interest that formalizes FRBNY practices and lessons learned from the crisis. This policy could include guidance on when to include contract protections that were not always found in FRBNY’s vendor contracts, such as requirements for higher risk vendor firms to provide a written conflict remediation plan and certify compliance with this plan.
  • Strengthen procedures in place to guide Reserve Banks’ efforts to manage emergency program access for higher-risk borrowers by providing more specific guidance on how Reserve Bank staff should exercise discretion and document decisions to restrict or deny program access for depository institutions and primary dealers that would otherwise be eligible for emergency assistance.
  • Document a plan for estimating and tracking losses that could occur under more adverse economic conditions within and across all emergency lending activities and for using this information to inform policy decisions, such as decisions to limit risk exposures through program design or restrictions applied to eligible borrowing institutions.
  • In drafting regulations to establish the policies and procedures governing emergency lending under section 13(3) of the Federal Reserve Act, set forth the Federal Reserve Board’s process for documenting, to the extent not otherwise required by law, its justification for each use of this authority.
  • Document the Federal Reserve Board’s guidance to Reserve Banks on types of emergency program decisions and risk events that require approval by or consultation with the Board of Governors, the Federal Open Market Committee, or other designated groups or officials at the Federal Reserve Board.

The entire report is embedded below.


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