john c williams : a jack of all trades is a master of none remarks by mr john c williams, president and chief executive officer of the federal reserve bank of new york, at the 2022 us treasury market conference, new york, 16 november 2022. * * * as prepared for delivery good morning, everyone. we are excited to have you back in person at the new york fed for the annual u. s. treasury market conference. you may have noticed that our auditorium has gotten a new look since you were last here. i hope you'll find it a comfortable space since we have a very busy day ahead. the last time ( libor's version ) the topic of today's conference is resiliency in the u. s. treasury market. before i speak about that, i'd be remiss if i did not take this opportunity - hopefully for the last time - to remind everyone that we are entering the final stretch of the transition away from the london interbank offered rate ( libor ). i'm pleased to report that the transition has been extremely successful so far, thanks to the significant and coordinated efforts from stakeholders across the globe. a special shout - out to the alternative reference rates committee ( arrc ) for its outstanding work and dedication in guiding the move off of u. s. dollar libor and promoting the adoption of more robust rates like the secured overnight financing rate ( sofr ). they proved that libor was far from irreplaceable. but there's still more work to do. over the next several months, the industry's focus needs to be on the remediation of legacy contracts well before the cessation of libor, so we don't have a last - minute rush. once we complete this final stretch of the transition, we can say good riddance to libor. even when the transition from libor is complete, the arrc's work will continue to shape the future. the arrc has laid out best practices for the use of reference rates grounded in overnight sofr. 1 importantly, this envisages only limited use of term sofr, which doesn't share overnight sofr's foundation in the deep and robust treasury financing markets. it's incredibly important that financial institutions consistently act in ways that are aligned with these best practices so that we don't have to come back and clean up another mess. unlike with star trek, the last thing

further weakened by having provided significant amounts of funding to failed investment funds, which reduced the amount of funding that was available to meet other needs. in the case of the tri - party repo market, the stress on repo borrowers was exacerbated by the design of the underlying market infrastructure. in this market, investors provide cash each afternoon to dealers in the form of an overnight loan backed by securities collateral. each morning, under normal circumstances, the two clearing banks that operate tri - party repo systems permit dealers to return the cash to their investors and to retake possession of their securities portfolios by overdrawing their accounts at the clearing banks. during the day, the clearing banks finance the dealers ’ securities inventories. usually, this arrangement works well. however, when a securities dealer becomes troubled or is perceived to be troubled, the tri - party repo market can become unstable. in particular, if there is a material risk that a dealer could default during the day, the clearing bank may not want to return the cash to the tri - party investors in the morning because the bank does not want to risk being stuck with a very large collateralized exposure that could run into the hundreds of billions of dollars. overnight investors, in turn, don ’ t want to be stuck with the collateral. so to avoid such an outcome, they may decide not to invest in the first place. these self - protective reactions on the part of the clearing banks and the investors can cause the tri - party funding mechanism to rapidly unravel. this dynamic explains the speed with which bear stearns lost funding as tri - party repo investors pulled away quickly. despite the strains created by the collapse of bear stearns, the “ rivets ” of the tri - party repo system held for several reasons. first, bear sterns did not fail ; instead it was acquired by jpmorgan chase with assistance from the federal reserve. second, the federal reserve stepped in to support the tri - party repo system by implementing the primary dealer credit facility ( pdcf ). the pdcf essentially placed the fed in the role of the tri - party repo investor of last resort thereby significantly reducing the risk to the clearing banks that they might be stuck with the collateral. as a consequence, the pdcf reassured end investors that they could safely keep investing. this, in turn, significantly reduced the risk that a dealer would not be able to obtain short - term funding through the