An Essay on the Fed and the U.S. Treasury: Lender of Last Resort and Fiscal Policy

14 Pages Posted: 27 May 2020

Date Written: May 21, 2020


This essay explores the evolution of my thinking on risky emergency lending to banks and non-banks. The Fed is now, in the Pandemic, engaging in lending with significant credit risk. While it appears these are Fed programs, in fact this lending is controlled by, and may be largely determined, by the Treasury. This is proper but should be clear. Lending with significant credit risk is a fiscal decision and should be made by the elected government not by an independent agency, whether made to banks or non-banks. And it should be the Treasury’s role, as advised by the Fed, to determine when there is significant credit risk. When there is no significant credit risk, the Fed should make the lending decision, without control or approval of the Treasury, again whether to banks or non-banks, as part of their role as liquidity supplier and lender of last resort. If there is disagreement as to whether there is significant credit risk the Treasury’s view should prevail.

Keywords: Federal Reserve, Treasury, emergency lending, lender of last resort

JEL Classification: E63

Suggested Citation

Scott, Hal S., An Essay on the Fed and the U.S. Treasury: Lender of Last Resort and Fiscal Policy (May 21, 2020). Available at SSRN: or

Hal S. Scott (Contact Author)

Harvard Law School ( email )

1557 Massachusetts Avenue
Cambridge, MA 02138
United States
617-495-4590 (Phone)
617-495-9593 (Fax)

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