Magazine article American Banker

Fed to Trade Currency Via Nonbanks

Magazine article American Banker

Fed to Trade Currency Via Nonbanks

Article excerpt

The Federal Reserve Bank of New York said Friday that it will conduct foreign exchange trades with securities broker-dealers, creating inroads into a domain of commercial banks.

Speaking in Phoenix to the Public Securities Association, a securities industry trade group, E. Gerald Corrigan, president of the New York Fed, linked the new arrangement to a previously announced change in policy aimed at boosting the ranks of primary dealers in government securities.

Both plans are designed to increase the number of participants in key markets.

"I think the central bank is out to get as much market access as possible," said Richard Mahoney, a managing director at Citibank, one of about 30 U.S. and foreign banks that act as counterparties in foreign exchange trades with the New York Fed.

Investment Banks Applaud Move

Mr. Corrigan's remarks sparked immediate interest among investment banks. "We are very pleased with the development," said a spokeswoman for Morgan Stanley & Co. "We look forward to submitting our applications to be part of the new group of . . . counterparties."

Securities firms already conduct foreign exchange trades for customers, though commercial banks are the dominant force in this market. Mr. Corrigan's announcement affects how the New York Fed carries out actions on behalf of the federal government to buy and sell dollars to regulate the U.S. currency's value against other currencies.

The interventions, made through private financial intermediaries such as banks, are sporadic, with no action in some fiscal quarters. …

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