NEW YORK (MNI) The New York Federal Reserve Bank said that it has
released the criteria for banks and savings associations to be
counterparties eligible to take part in reverse repurchase transactions.

The criteria were published one day after the Bank accepted Fannie
Mae and Freddie Mac as Government Sponsored Entities (GSEs) that can be
Reverse Repo operation counterparties. Chartered by the U.S. Congress
and “consistent cash” investors “in the triparty repo market,” the GSEs
are able to confirm and arrange settlement of significant volume of
transactions with New York Fed, the Bank said.

The RRPs are short-term temporary draining operations, without
monetary policy implications. Previously the Fed has accepted primary
dealers, then other entities such as money market funds, to do such RRP
operations.

The New York Fed announcement:

RRP Eligility Criteria: Banks and Savings Associations
July 28, 2011

This document sets forth the criteria for acceptance of a bank or
savings association as a counterparty eligible to participate in reverse
repurchase transactions (RRP) with the Federal Reserve Bank of New York
(FRBNY). FRBNY may engage in RRP, if at all, at the direction of the
Federal Open Market Committee (FOMC).

In any such RRP, FRBNY will sell securities held in the System Open
Market Account (SOMA) to counterparties subject to an agreement to
repurchase them at some future date. FRBNY will use the existing
industry tri-party infrastructure to undertake any such RRP. In
addition, as with current operations, FRBNY intends to use an auction
format for awarding transactions to counterparties.1

Upon submission of an application and acceptance of that
application by FRBNY, an applicant will be added to a public list,
maintained on FRBNY’s website, of RRP counterparties. Inclusion on such
list simply means that the entity is eligible to engage in RRP with
FRBNY. It does not mean that the entity is eligible for any other
program or transactional relationship with FBRNY. It does not in any way
constitute a public endorsement of that entity by FRBNY, nor should such
be viewed as a replacement for prudent counterparty risk management and
due diligence. FRBNY reserves the right to amend its list of RRP
counterparties at any time and for any reason in its sole discretion.
FRBNY reserves the right to disclose information regarding the RRP
counterparties. Details of transactions undertaken with RRP
counterparties will be disclosed in accordance with the requirements of
Section 1103 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act. That legislation requires the disclosure of certain
information regarding open market transactions between a Federal Reserve
Bank and nongovernmental entity that have been authorized under
specified provisions of Section 14 of the Federal Reserve Act, which
would include RRP.

I. Initial Eligibility2
To be accepted as a RRP counterparty, an applicant must:

A. be a bank (including a U.S. branch or agency of a non-U.S. bank)
or savings association eligible to receive interest on balances
maintained at the Federal Reserve Banks;

B. have reserve balances of no less than $10 billion as of March
31, 2011, the most recent quarter for which the relevant reports are
available3;

C. be a consistent investor in the tri-party repo market (in
particular, in transactions collateralized by U.S. government debt,
agency debt, and agency MBS securities);

D. be able to confirm and arrange settlement of a significant
volume of transactions with FRBNY; and

E. be able to satisfy the following transaction requirements: (a)
execute RRP with securities margined at 100% (i.e. the value of the
securities provided by FRBNY will equal the funds provided by the
counterparty), (b) execute term RRPs, with tenors of one-week or longer,
(c) submit minimum bids of $500 million or greater, (d) execute RRP for
next day settlement, and (e) execute the requisite RRP documentation
including FRBNY’s Master Repurchase Agreement, triparty custody
documentation and other documentation, as applicable.

An applicant will need to meet hardware and software requirements
for accessing and using FRBNY’s auction system and will also be
required, initially and from time-to-time, to participate in testing to
ensure successful operations.

An applicant must maintain a compliance program consistent with the
applicable regulatory requirements. FRBNY will not accept any applicant
as a RRP counterparty if it is or has been within the prior year,
subject to litigation, regulatory action, or investigation that FRBNY,
in its sole discretion, determines material or otherwise relevant to the
potential counterparty relationship. In making such determination, FRBNY
will consider, among other things, the stage of any such matters and the
applicant’s history of regulatory compliance.

In addition to the foregoing, before being accepted as a RRP
counterparty, an applicant must satisfy an FRBNY counterparty review.
FRBNY will not accept as a RRP counterparty any applicant that, in
FRBNY’s judgment, poses undue risks to the integrity, reputation, or
assets of FRBNY.

II. Continued Eligibility

FRBNY may remove an entity from the RRP counterparty list, or
otherwise cease to enter RRP with such counterparty, for any reason
including if such counterparty:

A. no longer satisfies any of the eligibility criteria listed in
Section I (including FRBNY’s ongoing satisfaction with the
counterparty’s financial condition and its compliance and internal
controls);

B. fails to provide FRBNY, on a timely basis, with any information
that FRBNY deems necessary to determine that the counterparty continues
to satisfy the eligibility criteria;

C. becomes subject to regulatory or legal proceedings that, in the
sole judgment of FRBNY, unfavorably impacts the counterparty
relationship;

D. poses, in FRBNY’s sole judgment, undue risks to the integrity,
reputation, or assets of FRBNY; or

E. does not, in FRBNY’s sole judgment, meaningfully participate in
RRP transactions with FRBNY over a period of time.

______________________________

1) The auction may be single or multiple price, to be determined by
FRBNY. In addition, as with current RRP operations, FRBNY may, in its
sole discretion, cap or limit any counterparty’s awards in a particular
auction or on an outstanding RRP basis, exclude a counterparty from any
particular auction, and/or reject, in whole or in part, any
counterparty’s bids.

2) The eligibility criteria for the RRP program are established by
FRBNY and may be changed in its sole discretion. Final determination of
whether an applicant is eligible to participate in the RRP program will
be made by FRBNY in its sole discretion.

3) FFIEC form 031 for domestic banks, FFIEC form 002 for U.S.
branches and agencies of foreign banks, Thrift Financial Report for
savings associations.

–By Sheila Mullan, New York, 212-669-6432, email: smullan@marketnews.com

** Market News International New York Newsroom: 212-669-6430 **

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