By Ian McKendry

WASHINGTON (MNI) – New York Federal Reserve Bank President William
Dudley said Friday the Fed’s decision to open dollar swap lines to
foreign central banks was made to help support the U.S. economy, adding
the sovereign debt problems in Europe are manageable.

“This is not about helping Europe, this is about helping
ourselves,” Dudley said, answering questions before a House Committee on
Oversight and Government Reform.

“If the access to dollar funding were severely impaired, this could
necessitate the abrupt, forced sales of dollar assets by these banks,
which could seriously disrupt U.S. markets and adversely affect U.S.
businesses, consumers, and jobs,” Dudley wrote in his prepared remarks.

He then told lawmakers that with European leaders laying out a path
forward “the devil is now in the details” and the Fed will be watching
closely to see how decisively the plans are implemented and how European
authorities follow the rules.

“I think that the important thing here to recognize is that if the
European countries put their fiscal houses in order then the banking
problems in Europe become much more manageable,” Dudley said, adding
that he thought the European Central Bank is being “quite aggressive” in
being a lender of last resort.

“Where the issue is in Europe with regards to the European Central
Bank is their ability to buy primary debt issuance from the sovereign
countries and this is prohibited by treaty,” Dudley said.

He did note that some people are arguing that the ECB should buy
primary debt anyways, but that he thinks Mario Draghi, president of the
ECB, is doing the right thing by honoring those treaties.

Steven Kamin, acting director of the division of international
finance for the Federal Reserve Board of Governors, who testified
alongside Dudley, said if the European authorities follow the rules they
have already stated, there is “a good chance” it will build market
confidence and the crisis will begin to ease.

“If they do not succeed in the near term in achieving that type of
progress and follow through and that disheartens markets and investors
then we could see more adverse outcomes,” Kamin said.

Mark Sobel, deputy assistant secretary for the U.S. Treasury who
was testifying on the Treasury’s behalf, said in prepared remarks that
the situation in Europe is the “foremost” threat to the global economy.

“The crisis in Europe is severe, and it is impacting not only
Europe, but the entire global economy,” Sobel said, adding that the
challenges facing Europe are “completely within the capacity of the
stronger European members to manage.”

Sobel added “the IMF cannot substitute for a strong and credible
European firewall and response,” adding that the Administration has been
clear that it has “no intention of seeking additional funding for the
IMF.”

** Market News International Washington Bureau (202) 371-2121 **

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