EliScholar – A Digital Platform for Scholarly Publishing at Yale
Abstract
The 2007–09 financial crisis reached a critical stage in March 2008. Amid falling house prices and downgrades of mortgage-related securities, financial markets became severely disrupted. The Federal Reserve—the US central bank—became increasingly concerned about the inability of the 20 primary dealers, including the five largest US investment banks, to fund themselves in short-term funding markets, such as the repurchase agreement market, then estimated at 10trillion.Inresponse,theFedcreatedseveralemergencylendingfacilitiestorestoremarketliquiditythatrequiredtheFedtoinvokeSection13(3)oftheFederalReserveAct.TheTermSecuritiesLendingFacilityauthorizedtheFederalReserveBankofNewYorktolendtoprimarydealersupto200 billion of highly liquid US Treasuries against collateral that was particularly illiquid at the time. Eligible collateral initially included triple-A private-label mortgage-backed securities but was later broadened. In July 2008, an additional 50billionwasallocatedforaTSLFOptionsProgram.TheTSLFoperatedbetweenMarch27,2008,andFebruary1,2010.Usagepeakedat236 billion in October 2008. Overall, 18 of the 20 primary dealers participated and the Fed collected $781 million in fees