In a press release, the bank said this new group would be called the Special Investment Management Group, and it promoted Sarah Dahlgren to executive vice president to lead the group.
Dahlgren, a long-time staffer, was previously in charge of the New York Fed’s relationship with American International Group Inc., the troubled insurer that was bailed out by the central bank to protect the financial system.
The new group will have responsibility for overseeing the credit extended to AIG, along with the holdings the New York Fed has from its bailout of failed investment bank Bear Stearns.
“This move represents an additional enhancement to the Bank’s governance and risk management in light of the tremendous expansion of the Bank’s balance sheet over the past eighteen months by separating out the management of the new investments from the Bank’s financial risk management,” the New York Fed said in a press statement.
The Fed’s balance sheet has grown massively over the course of the financial crisis as the central bank has intervened in financial markets and extended credit. From just over $800 billion in primarily government bond holdings at the start of the financial crisis in August 2007, the balance sheet now stands at $2.3 trillion, largely due to Fed buying of mortgage-related assets.
The Fed currently values the holdings acquired through its AIG and Bear Stearns interventions at at least $64 billion. The interventions were highly controversial, with observers wondering about propriety of the actions, along with the risk taken on by the central bank. Policy makers have strongly defended the actions as necessary and they have been confident the Fed won’t lose any money either.
The Fed has come under increased scrutiny for its AIG work of late. This week, Fed Chairman Ben Bernanke said in a letter to the Government Accountability Office that the central bank would welcome a formal government review of “all aspects of our involvement in the extension of credit to AIG.”
The unveiling of the creation of the new group came amid a slew of personnel announcements at the bank. The institution said senior vice president Deborah Perelmuter has been named to a new post in the communications arm of the New York Fed. The official has a quarter century of service with the bank.
Bank president William Dudley said in a statement that Perelmuter’s “extensive experience in monetary policy operations and financial markets make her uniquely qualified to serve the New York Fed as a resource to our many external stakeholders and reinforce our critical mandates with respect to monetary policy, operations, capital markets, financial stability and other central banking activities.”