US Government Debt Different - Finance Department - University of ...

Charles W. Mooney, Jr“Treasury Direct” or “Legacy Treasury Direct” systems, all Treasuriesmust be held in an account with a Federal Reserve Bank. 10 In general,only depository institutions (banks) that are members of the FederalReserve System and certain other depository institutions, includingU.S. branches of foreign banks and foreign central banks, are eligibleto have such accounts. 11 Other holders must hold through anintermediary that holds through a Federal Reserve Bank or throughanother intermediary. While the U.S. would have ready access to thebooks of Federal Reserve Banks, it would not have access to the underlyingbooks of the depository institutions that hold through theiraccounts with the Federal Reserve Banks or to the books of otherintermediaries down the chain. 12177Consider a hypothetical example. Assume that Bank of America(BoA) holds Treasuries of a given issue in its account with the FederalReserve Bank of New York. BoA, in turn, has credited some ofits holdings of that issue to the securities accounts of its customers.BoA’s customers include Banque Delen, a Belgian bank, and SocieteGenerale, a French bank. Banque Delen has credited some of itsholdings of that issue to its customers, who include the NationalBank of Pakistan. National Bank of Pakistan, likewise, has creditedsome of its holdings of that issue to its customers, who include thethe foreign holdings of U.S. financial assets by individual countries from TIC data.Id. at n.1.10 Treasuries held in the Treasury/Reserve Automated Debt Entry System (or“TRADES”) are governed by the TRADES Regulations, 31 C.F.R. Part 357.Treasuries also may be held in the Legacy Treasury Direct and the Treasury DirectSystems, in which case the U.S. would know the identity of the owners. But theTreasuries held in those systems outside of TRADES consist of less than 3% of theoutstanding Treasuries and major holders are unlikely to use them. See note 136,infra (discussing Treasury Direct and Legacy Treasury Direct Systems).11 See Federal Reserve Banks Operating Circular No. 7, Book-Entry SecuritiesAccount Maintenance and Transfer Services (August 19, 2005), 3.12 (defining“Participant” and listing institutions that are eligible to maintain securities accountswith a Federal Reserve Bank) available at www.frbservices.org/files/regulations/pdf/operating_circular_7.pdf. National banks are required to become members of theFederal Reserve System. 12 U.S.C. § 222. State-chartered depository institutionsmay apply for membership, which requires approval by the Board of Governors ofthe Federal Reserve System. 12 U.S.C. §§ 321, 322.12 Cf. Steven L. Schwarcz, Intermediary Risk in a Global Economy, 50 Duke L.J.1541, 1547-48 (2012) (explaining why it is difficult to ascertain the identity ofinvestors holding securities through these intermediaries).