From the Federal Open Market Committee September 16, 2008 transcript: http://www.federalreserve.gov/monetarypolicy/files/FOMC20080916meeting.pdf Page 11, on the subject of unlimited central bank currency swaps: MR. DUDLEY. [...] In terms of size, I think it is really important that you don’t create notions of capacity limits because the market then can always try to test those. Either the numbers have to be very, very large, or it should be open ended. I would suggest that open ended is better because then you really do provide a backstop for the entire market. As we’ve seen with the PDCF, if you provide a suitably broad backstop, oftentimes you don’t even actually need to use it to any great degree. So I think that should be the strategy here. --- Pages 13-14: MR. FISHER. Mr. Chairman, I was going to say that we had this discussion before. We did approve the swap lines. I wonder if you could just summarize for us what you view as the downside risk to our doing this. CHAIRMAN BERNANKE. Well, I don’t think there are any significant downside risks. There are operational issues that Bill Dudley and his team have to worry about. If we extend funds to the Europeans, which they then relay to their banks, it affects our reserve positions and affects the management of the federal funds rate and requires sterilization. That’s an operational issue. I suppose, if there were really very large draws, it would begin to affect some of these balance sheet constraint concerns that we have. I think that is not an entirely separate issue, but it is certainly one that we are looking at in terms of trying to get interest on reserves and those other kinds of measures. Again, my expectation is that having the facility would in part provide some confidence over and above how much we actually extend. So I guess the operational issues and the further draw on the balance sheet would be the downside, but to me, it seems to be a relatively straightforward step - one we’ve done in the past and one that has the additional benefit of indicating global cooperation on these issues. MR. DUDLEY. In principle, we could talk to the ECB and other central banks about having the rate on these swap lines be at a slight penalty relative to normal times to try to mitigate the potential reserve impact. I mean, it doesn’t have to be at 2 percent or 2¼ percent for overnight funds - it could be somewhat north of that. But if we have a credible backstop, then it should calm the markets, and then the backstop should not be used. If we have a backstop and it actually is used, that is presumably because market conditions are horrific. So in that environment, you could argue that the reserve-management things are very second order concerns in some sense. --- Page 17: MR. DUDLEY. I think a lot of the programs that we have are actually open ended. The discount window is open ended in the sense that it’s limited only by the amount of collateral that the banks post there. The Primary Dealer Credit Facility is open ended in that it is limited only by the size of the tri-party repo system. My point here is that, if foreign banks worry about capacity limits, even having a large program could in principle not be sufficient in extremis. But if the program is open ended, the rollover risk problem goes away. If I lend you more dollars today, I don’t have to worry about getting those dollars back because I always know that the facility is there. --- Page 17: MR. LACKER. But we will communicate a program size? MR. DUDLEY. I think that remains to be discussed with our counterparties. I think we need to have discussions about what would be most effective. Would a big size that’s fixed in quantity be most effective? Would an open limit be most effective? I think we have to have those discussions. I think the important thing here - and what we’re going for - is credibility. In a crisis you need enough force - more force than the market thinks is necessary to solve the problem - and we’re going to have to have discussions to determine how much is enough force.