) are severely disrupted. for example, the federal reserve has improved banks'access to short - term credit by temporarily relaxing the terms on the discount window and by expanding – through the introduction of the term auction facility and the establishment of reciprocal currency arrangements ( liquidity swap lines ) with foreign central banks – the range of programs through which it can lend to depository institutions. 3 ultimately, the objective of liquidity losses sustained by other financial firms could then erode their financial strength, limiting their ability to play their intermediation role or even cause them to fail, thereby reinforcing financial pressures. in addition, the disorderly failure of a large, complex, interconnected firm could undermine confidence in the u. s. financial sector more broadly, potentially triggering a widespread withdrawal of funding by investors and an additional tightening of credit conditions, which would, in turn, cause a further reduction in economic activity. specifically, the federal reserve has relaxed the terms on the discount window by lowering the spread between the discount rate and the target federal funds rate from 100 to 25 basis points and extending the maturity on discount window loans, which now have a maximum duration of 90 days. programs is to facilitate the intermediation of credit to households and businesses. the immediate goal of such facilities, however, is the reduction of stresses in the interbank funding market. the significant narrowing since the start of this year in important measures of stress in this market – specifically, libor - ois spreads, shown in the left panel of figure 2 – together with diminished usage of these facilities – shown to the right – suggest that some easing in this market has occurred in line with the implementation and expansion of these initiatives. in a similar manner, the term securities lending facility ( tslf ) and primary dealer credit facility ( pdcf ) provide liquidity to primary dealers to allow them to perform their function of making markets to support their customers'needs to buy, sell, and issue securities. 4 the immediate goal of these facilities was the reduction of stresses in repo markets for securities other than treasury securities. the narrowing of spreads between repo rates on agency and mortgage - backed securities ( mbs ) and treasury general collateral repo rates – shown in the left panel of figure 3 – together with diminished usage of the tslf and pdcf – shown to the right – suggest that stresses in this market have eased since november. 3. lending to support key financial markets. credit - easing policies have also been targeted at improving

laurence h meyer : executing monetary policy without treasuries remarks by mr laurence h meyer, member of the board of governors of the us federal reserve system, at the 52nd international atlantic economic conference, philadelphia, pennsylvania, 12 october 2001. * * * when i began writing this paper, projections of federal budget surpluses raised the possibility that the outstanding stock of treasury debt might be eliminated over the next ten years. while everyone understood that considerable uncertainties - - related to economic assumptions and future policy decisions - - surrounded these projections, they required that the federal reserve take seriously the possibility that monetary policy might have to be conducted without treasury securities. the events since september 11, including a significantly expanded path for federal expenditures and the potential for further tax cuts, have at least delayed such an outcome and have added significantly to the uncertainty about projections of future surpluses. nevertheless, it seems prudent to continue to plan for the contingency that over some longer period the federal debt might, at least for a while, be eliminated. in discussing the implications for monetary policy, it is useful to separate monetary policy actions into two steps. in the first step, the policy decision, the federal open market committee ( fomc ) sets a target for the federal funds rate. in the second step, policy implementation, the manager of the fed's portfolio, the system open market account ( soma ), injects or withdraws reserves to achieve a funds rate consistent with the fomc's target. the formal procedural link between the two decisions is the fomc's directive to the manager of soma, calling on him or her to conduct appropriate operations to support the fomc's policy decision. while continued unified budget surpluses leading to the elimination of treasury securities would have some important macroeconomic implications for our policy decisions, the elimination of treasury securities should not influence either the way the fomc makes its policy decisions or the use of reserve injections or withdrawals to implement these decisions. but such a development would require some changes in the way that reserves are injected or withdrawn. i will be discussing some options for adapting the implementation of monetary policy to a world without treasury securities, but the key message is not to worry. there are plenty of options, the fed will get the job done, so the elimination of treasury debt would not undermine the effectiveness of monetary policy. before proceeding, i note that the views i am presenting today are my own. i am not