Rapid eLearning Case Study from the Federal Reserve of St. Louis

1. © 2014 Federal Reserve Bank of St. Louis | Not for Public Release
Rapid Learning at the Fed
“a financial crisis is a terrible thing to waste”
May 14, 2014
Erik Soell
Director
Rapid Communications
at the St. Louis Federal Reserve Bank

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Information is giving out;
communication is getting through
(Syndey J. Harris)
These are my views and not necessarily those of the
Federal Reserve Bank of St. Louis nor the Federal Reserve System.

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Pop Quiz
Q1: True or false: The Federal Reserve
produces both coin and paper currency.

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Pop Quiz
Q2: What major anniversary is the Federal
Reserve is celebrating this year?

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Pop Quiz
Q3: True or False: The Federal Reserve
was born out of a secret meeting between
elite businessmen who met at Jekyll
Island, GA?

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First, a Few Things about the Fed
• The Federal Reserve was created by Congress in 1913 with an
important mission:
Influence the supply of money and credit
Respond to financial panics
Regulate and supervise financial institutions
Serve as a banking and fiscal agent for the U.S. government

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How Does the Federal Reserve Function?
A balance of power
• 7 Members of the
Board of Governors
in Washington, D.C.
• 12 Federal Reserve
Bank Presidents
• Public-private
partnership in votes
on monetary policy
decisions
(7 Governors; 5
Presidents)
Arms-length from
partisan politics
• Members of the
Board of Governors
are appointed by the
President and
confirmed by
Congress
• Federal Reserve
Presidents are
selected by the local
Board of Directors
and approved by the
Board of Governors
Budget autonomy
• Expenses covered
through securities
investments held for
Open Market
Operations
• All excess revenues
returned to the
Treasury
($88B in 2013)

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Source: BLS and Loan Performance -Haver Analytics
The Bust in the Housing Market Was the
Obvious Cause of the Financial Crisis

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“Conventional”
mortgages were
generally sold to
Fannie Mae and
Freddie Mac
“Nonprime”
mortgages were
pipelined through
mortgage
companies
Mortgages were
then transformed
into
“mortgage-backed
securities”
The U.S. “spread
the risk”
Moreover, Large Investment Banks Were
at the Epicenter because of Their Role in
Creating Securities from Mortgages

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The Decline in House Prices
Was Fast and Extended
Source: Federal Housing Finance Agency Seasonally Adjusted Expanded HPI

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The Resulting Crisis Required
a Massive Response
Fed
• Eased monetary policy and
provided funds (liquidity) to
stabilize financial markets
both domestically and
internationally
US Government
• Funded the Troubled Asset
Relief Program, the $800
billion economic stimulus,
Cash for Clunkers, Homebuyer
Tax Credit, and extended
unemployment benefits
FDIC
•Raised bank deposit
insurance limits and
provided other bank debt
guarantees
First responders to
the financial crisis

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The Headlines

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Former Chairman Bernanke’s View
“… it was kind of like
you’re in a car wreck
or something. You’re
mostly involved in
trying to avoid going
off the bridge. And
then, later on, you
say: ‘Oh my God.’”
Source: Brookings Institute, January 16, 2014

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The Federal Reserve’s Response
to the Financial Crisis
• Reduced the federal funds rate to near zero
(traditional policy)
• Expanded traditional lending programs to banks
(traditional policy)
• Created emergency loan packages for AIG and Bear Stearns,
using the “unusual and exigent” provisions of the Federal
Reserve Act
• Executed broad-based lending to financial markets, using the
“unusual and exigent” provisions of the Federal Reserve Act

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The Actions of the Federal Reserve,
Treasury, and the FDIC Prevented a
Collapse of the Financial System…
Source: British Bankers Associations and Reuters

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However, We Did Not Avoid a
“Great Recession”
Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis, U.S. Department of Commerce: Bureau of Economic Analysis

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Quantitative Easing from a
Balance Sheet Perspective
Nontraditional
monetary policy
tool: Large Scale
Asset Purchases
(QE1, QE2, and QE3)
Lending and liquidity programs to respond
to the financial crisis
Source: Federal Reserve Board

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The Result Has Been a Gradual Decline in
the Unemployment Rate
Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis, U.S. Department of Commerce: Bureau of Economic Analysis

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Failed Banks and Thrifts
Source: FDIC
• Most do not
realize that
over 500
community
banks have
failed over the
last five years.

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There Are Still a Large Number
of “Problem” Banks
Source: FDIC

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Beyond Banking, Housing Issues Remain
in Some Parts of the Country
8.76%
4.99%
0
2
4
6
8
10
Percentage(%)
January 2007-December 2013
U.S. Percentage of Seriously Delinquent Loans
As of December 31, 2013
Source: Core Logic

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“It’s a Phone Call”
• <video removed>

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The Secret Sauce
Concept paper Start small
Phone
management
Governance
Revisions along
the way
Luck: life favors
the prepared

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Timeline
1st session
(August
2008)
State
examiners
invited
(May
2009)
100th
session
(March
2010)
CEUs
offered
(January
2011)
250th
session
February
2012)
Mandatory
sessions
(January
2013)
500th
session
(estimated
August
2014)

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Data
Over 88,000 total
registrations received
Over 25,000 surveys received
Over 7,000 continuing
education units awarded
All time average:
93% agree the sessions met
their needs
First 12 months averaged 5
sessions per month;
Last 12 months averaged 9
sessions per month
All time average:
90% agree the sessions
provide better understanding
of banking and regulatory
environment
Largest session by
registration:
July 24, 2013: 1,589
All time average:
188 registrations per session
Eight core programs with
several ad hoc and spin off
programs

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Current Programs

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Have fun with your brand

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Questions

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