The Federal Reserve and the 2020 Economic and Financial Crisis

Abstract

This Article provides a comprehensive legal analysis of the Federal Reserve’s response to the 2020 economic and financial crisis. First, it examines sixteen ad hoc lending facilities established by the Fed to fight the crisis and sorts them into two categories. Six advance the Fed’s monetary mission and were designed to halt a run on financial institutions. Ten go beyond the Fed’s traditional role and are designed to directly support financial markets and the real economy. Second, it maps these programs onto the statutory framework for money and banking. It shows that Congress’s signature crisis legislation, the CARES Act, suspended several existing restrictions on Fed lending sub silentio. And it reveals how the Fed’s lending to securities dealers and foreign central banks, a practice dating back more than fifty years, has never been expressly authorized by Congress. Third, it argues that these tensions reflect deficiencies in our contemporary economic and financial architecture. Finally, it suggests statutory reforms targeted at improving the government’s response to future economic and financial emergencies.

Keywords: Central Banking, Money, Banking, Lender of Last Resort, Monetary Policy, CARES Act, Federal Reserve, 13(3), Repo, Swap Lines, Emergency Lending, ESF, Shadow Banking, Eurodollars

JEL Classification: E40, E42, E44, E50, E51, E52, E58, E61, E62, E63, G01, G20, G21, G23, G28, K23, K40