The Federal Reserve Bank of New York was directed in late 2008 to implement large-scale purchases of agency mortgage-backed securities (MBS). The operational requirements and financial characteristics of agency MBS are complex, and since the New York Fed did not yet have expertise in this area, four external investment management firms were selected, through a competitive bidding process, to assist in implementing the purchase program. The firms were chosen because their deep experience with agency MBS markets would enable the New York Fed to launch the program quickly while minimizing risk. Purchases began in January 2009.
The New York Fed required the investment management firms to have a robust system of controls, including trading staff that were physically separated from other employees of the firms and an information barrier to restrict information from flowing between the traders making purchases at the New York Fed’s direction and other traders at the firms. The New York Fed required each firm to certify in writing that it was in compliance with the required controls, and the controls were tested by both internal and external auditors. Based on what has been shown to us by Reuters, the New York Fed has no reason to believe that PIMCO behaved improperly as an investment manager.
The use of external investment managers to conduct MBS purchases was phased out between September 2009 and March 2010 as New York Fed staff developed the expertise to carry out purchases on their own. The use of PIMCO as an investment manager ended in September 2009. The New York Fed continues to conduct MBS purchases in a competitive and transparent manner, equally informing all market participants by publicly posting aggregate trading information weekly, individual transactions monthly, and counterparty details on a 24-month rolling schedule.
The New York Fed meets regularly with a wide range of financial market and real economy participants through various advisory groups and outreach programs to obtain essential perspectives on the state of the U.S. economy. The New York Fed takes great care to make sure that these interactions are conducted in a manner that would not provide any signal as to the future path of monetary policy.