The Federal Reserve's Financial Crisis Response A: Lending & Credit Programs for Depository Institutions

Yale Program on Financial Stability Case Study 2015-1A-v1

26 Pages Posted: 29 Jan 2016 Last revised: 9 Feb 2016

See all articles by Rosalind Wiggins

Rosalind Wiggins

Yale Program on Financial Stability

Andrew Metrick

Yale School of Management; National Bureau of Economic Research (NBER); Yale University - Yale Program on Financial Stability

Date Written: February 1, 2016

Abstract

Beginning in the summer 2007 the Federal Reserve (the Fed) was called upon to address a severe disruption in the interbank lending markets sparked by a downturn in the subprime mortgage market. As these developments began to impact the ability of banks to raise adequate funding, the Fed encouraged them to utilize the Discount Window (DW), its standing facility for lending to depository institutions, and repeatedly decreased the lending rate to make the facility more accessible. Despite the Fed’s efforts, for a number of reasons, including historical perceptions of stigma, banks were reluctant to utilize the DW. In December 2007, the Federal Reserve introduced the Term Auction Facility (TAF), which provided term loans via auction utilizing the same collateral that could have been used at the DW. The TAF was immediately and aggressively utilized and would become one of the largest facilities employed by the Fed to combat the financial crisis. Ultimately, the Fed lent a total of $3.8 trillion to 416 banks under the TAF. This case examines the Fed’s use of the DW and the TAF to provide liquidity to depository institutions in fighting the financial crisis.

Keywords: Financial Crisis, Federal Reserve, Discount Window, Term Auction Facility

JEL Classification: G01, G21, G28

Suggested Citation

Wiggins, Rosalind and Metrick, Andrew, The Federal Reserve's Financial Crisis Response A: Lending & Credit Programs for Depository Institutions (February 1, 2016). Yale Program on Financial Stability Case Study 2015-1A-v1. Available at SSRN: https://ssrn.com/abstract=2723526 or http://dx.doi.org/10.2139/ssrn.2723526

Rosalind Wiggins (Contact Author)

Yale Program on Financial Stability ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

Andrew Metrick

Yale School of Management ( email )

165 Whitney Avenue
New Haven, CT 06511
United States
(203)-432-3069 (Phone)

HOME PAGE: http://faculty.som.yale.edu/andrewmetrick/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yale University - Yale Program on Financial Stability

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
82
rank
295,566
Abstract Views
447
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information