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Journal of Financial Crises

2020

Articles 1 - 11 of 11

Full-Text Articles in Finance and Financial Management

New Zealand’S Wholesale Funding Guarantee (Nz Gfc), Everest Fang Oct 2020

New Zealand’S Wholesale Funding Guarantee (Nz Gfc), Everest Fang

Journal of Financial Crises

In 2008, the United States subprime mortgage crisis sparked international financial turmoil, with effects becoming particularly severe after the collapse of Lehman Brothers on September 15. Due to their banks’ dependence on foreign funding, New Zealand’s money market experienced significant friction spilling over from the United States and Europe. Liquidity premiums rose, and interbank lending became increasingly restricted. Although the crisis was not as severe in New Zealand as it was in many other countries, the problems in the money market caused some level of financial strain. To combat the crisis, the Minister of Finance announced on November 1, 2008, …

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The Greek Credit Guarantee Scheme (Greece Gfc), Daniel Thompson Oct 2020

The Greek Credit Guarantee Scheme (Greece Gfc), Daniel Thompson

Journal of Financial Crises

Beginning in 2008, many Greek banks began to face liquidity strains and capital problems as a result of the global financial crisis. In October 2008, Eurozone leaders released a declaration requiring all participating nations to ensure adequate liquidity, facilitate ease of funding, and recapitalize banks. On November 7, 2008, the Greek Ministry of Economy and Finance submitted a draft law, Law 3723, to the European Commission to fulfill the above directives through the Bank of Greece (BOG). While Law 3723 consisted of three main “pillars,” the focus for this case is pillar II, the credit guarantee scheme, otherwise known as …

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The Debt Guarantee Program Of The Temporary Liquidity Guarantee Program (U.S. Gfc), Justin Katz Oct 2020

The Debt Guarantee Program Of The Temporary Liquidity Guarantee Program (U.S. Gfc), Justin Katz

Journal of Financial Crises

Following the collapse of Lehman Brothers in September of 2008, banks faced extreme difficulty in issuing new debt and finding affordable sources of funds due to heightened fears over counterparty solvency and liquidity risk. By the end of September, the TED spread had spiked to 464 basis points, and issuance of commercial paper fell 88%. On October 14th, to boost confidence and lower short-term financing costs, the Federal Deposit Insurance Corporation announced the Debt Guarantee Program (DGP) as part of the Temporary Liquidity Guarantee Program (TLGP). Under the DGP, the FDIC guaranteed in full a limited amount of senior unsecured …

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The Federal Reserve’S Financial Crisis Response E: The Term Asset-Backed Securities Loan Facility, Rosalind Z. Wiggins, Andrew Metrick Jul 2020

The Federal Reserve’S Financial Crisis Response E: The Term Asset-Backed Securities Loan Facility, Rosalind Z. Wiggins, Andrew Metrick

Journal of Financial Crises

Securitization is a process that allows banks and other lenders to package loans and sell them as bonds called asset-backed securities (ABS), removing them from their balance sheets and immediately generating cash for new loans. ABS are an important component of the financing cycle for many types of loans to households and small businesses, including mortgages. In the fall of 2008, financial markets began experiencing disturbances as the effects of the U.S. subprime market meltdown spread. The ABS market froze decreasing the volume of new loans to households and small businesses. The Federal Reserve became very concerned about the potential …

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Guarantees And Capital Infusions In Response To Financial Crises B: U.S. Guarantees During The Global Financial Crisis, June Rhee, Andrew Metrick Apr 2020

Guarantees And Capital Infusions In Response To Financial Crises B: U.S. Guarantees During The Global Financial Crisis, June Rhee, Andrew Metrick

Journal of Financial Crises

During 2008-09, the federal government extended multiple guarantee programs in an effort to restore the financial market and contain the panic and crisis in the market. For example, the Treasury provided a temporary guarantee program for the money market funds, the FDIC decided to stand behind certain debts and non-interest-bearing transaction accounts, and the Treasury, the FDIC, and the Federal Reserve agreed to share losses in certain assets belonging to Citigroup. This case reviews these guarantee programs implemented during the global financial crisis by the government and explores the different rationale that shaped certain design features of each program.

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The Legal Authorities Framing The Government’S Response To The Global Financial Crisis, Scott G. Alvarez Esq., Thomas C. Baxter Jr., Esq., Robert F. Hoyt Esq. Apr 2020

The Legal Authorities Framing The Government’S Response To The Global Financial Crisis, Scott G. Alvarez Esq., Thomas C. Baxter Jr., Esq., Robert F. Hoyt Esq.

Journal of Financial Crises

The 2007–09 global financial crisis required that the Federal Reserve, Treasury Department and Federal Deposit Insurance Corporation survey their various legal authorities and consider how they might be used to mitigate the meltdown of the United States financial system. This essay explores the range of legal authorities and procedural issues presented by key facilities implemented during the crisis, many of which were new and creative. This essay also provides valuable examples of how such authorities were used and describes how, in some instances, agencies worked together to design innovative interventions that no separate agency could have achieved alone.

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Lessons Learned: Edwin (Ted) Truman, Yasemin Sim Esmen Jan 2020

Lessons Learned: Edwin (Ted) Truman, Yasemin Sim Esmen

Journal of Financial Crises

Insights on fighting financial crises from Ted Truman, an expert in responding to the international dimensions of financial crises. Topics include the initial US response to the Global Financial Crisis of 2008-2009 and the utiltiy of issuing Special Drawing Rights (SDR).

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Basel Iii F: Callable Commercial Paper, Christian M. Mcnamara, Rosalind Bennett, Andrew Metrick Jan 2020

Basel Iii F: Callable Commercial Paper, Christian M. Mcnamara, Rosalind Bennett, Andrew Metrick

Journal of Financial Crises

One of the Basel Committee on Banking Supervision’s responses to the global financial crisis of 2007-09 was to introduce the Liquidity Coverage Ratio (LCR), a short-term measure that evaluates whether a bank has enough liquidity to meet expected cash outflows during a 30-day stress scenario. One area in which this incentive has already resulted in changed practices is in the market for commercial paper. Banks often provide backup liquidity facilities to the issuers of commercial paper that the issuers can draw upon to repay a maturing issue of commercial paper if they are unable to sell a new issue to …

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Basel Iii E: Synthetic Financing By Prime Brokers, Christian M. Mcnamara, Andrew Metrick Jan 2020

Basel Iii E: Synthetic Financing By Prime Brokers, Christian M. Mcnamara, Andrew Metrick

Journal of Financial Crises

Hedge funds rely on “prime brokerage” units within banks to provide leverage. With the enhanced capital requirements and new liquidity standards introduced by Basel III driving up the cost to banks of engaging in such financing, prime brokers have begun to offer an alternative means of providing hedge fund clients with leveraged exposure to securities. Known as synthetic financing, this alternative requires the prime broker to enter into derivatives contracts with the clients. Under the Basel III framework, the ability of banks to hedge and net such derivative positions results in capital and liquidity costs for synthetic financing that are …

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Basel Iii D: Swiss Finish To Basel Iii, Christian M. Mcnamara, Natalia Tente, Andrew Metrick Jan 2020

Basel Iii D: Swiss Finish To Basel Iii, Christian M. Mcnamara, Natalia Tente, Andrew Metrick

Journal of Financial Crises

After the Basel Committee on Banking Supervision (BCBS) introduced the Basel III framework in 2010, individual countries confronted the question of how best to implement the framework given their unique circumstances. Switzerland, with a banking industry that is both heavily concentrated and very large relative to the size of its overall economy, faced a special challenge. It ultimately adopted what is sometimes referred to as the “Swiss Finish” to Basel III—enhanced requirements applicable to Switzerland’s “too-big-to-fail” banks Credit Suisse and UBS that go beyond the base requirements established by the BCBS. Yet the prominent role played by relatively new contingent …

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Basel Iii B: Basel Iii Overview, Christian M. Mcnamara, Michael Wedow, Andrew Metrick Jan 2020

Basel Iii B: Basel Iii Overview, Christian M. Mcnamara, Michael Wedow, Andrew Metrick

Journal of Financial Crises

In the wake of the financial crisis of 2007-09, the Basel Committee on Banking Supervision (BCBS) faced the critical task of diagnosing what went wrong and then updating regulatory standards aimed at preventing it from occurring again. In seeking to strengthen the microprudential regulation associated with the earlier Basel Accords while also adding a macroprudential overlay, Basel III consists of proposals in three main areas intended to address 1) capital reform, 2) liquidity standards, and 3) systemic risk and interconnectedness. This case considers the causes of the 2007-09 financial crisis and what they suggest about weaknesses in the Basel regime …

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