Reply #63: Fed group recommends backup clearing bank

[UpInArms]

http://today.reuters.com/investing/financeArticle.aspx?type=bondsNews&storyID=2005-12-15T190627Z_01_WBT004391_RTRIDST_0_ECONOMY-FED-BACKUP-URGENT.XML

WASHINGTON, Dec 15 (Reuters) - The Federal Reserve said on Thursday a working group it set up last year to look into securities clearing contingencies recommended the establishment of a dormant backup clearing bank for government securities.

The dormant bank would be activated to clear and settle U.S. government securities "if a credit or legal problem caused the market to lose confidence in an existing clearing bank, and no well-qualified bank stepped forward to purchase the existing bank's clearing business."

The working group recommended that once the dormant bank is established and final work finished, "NewBank" should apply for a limited-purpose trust company charter from the New York State Banking Department and seek member bank status in the Federal Reserve System from the New York Fed.

The Bond Market Association has agreed to lead the final phase of work on the dormant bank, with a core group of its members acting as a steering committee.

Setting up itself as the lender of last resort?