Macroeconomics Commons^™

The United Kingdom's Credit Guarantee Scheme (U.K. Gfc), Christian M. Mcnamara

Journal of Financial Crises

The September 15, 2008, bankruptcy of Lehman Brothers resulted in a collapse of wholesale funding markets that threatened the ability of UK financial institutions to continue funding themselves. By the end of the month, two leading UK banks—HBOS and Bradford & Bingley—had to be rescued, and there was a real risk that the entire financial system could collapse. Faced with the need to stabilize the system, UK regulators on October 8 introduced a package of measures that included a £250 billion Credit Guarantee Scheme (the Guarantee Scheme) aimed at providing banks with access to needed funding. Under the Guarantee Scheme, …

The Federal Reserve’S Financial Crisis Response D: Commercial Paper Market Facilities, Rosalind Z. Wiggins, Andrew Metrick

Journal of Financial Crises

During the summer of 2007, the U.S. residential mortgage market began to decline sharply negatively impacting the asset-backed commercial paper (ABCP) market, which often relied on mortgages as underlying support. Money Market Mutual Funds (MMMFs), significant investors in commercial paper (CP), quickly retreated from the market, causing a substantial decline in outstanding ABCP. In September 2008, pressures on the markets severely escalated again, when the Reserve Primary Fund MMMF “broke the buck” and prompted run-like redemption requests by many MMMF investors. These disruptions resulted in higher rates and shorter maturities, practically freezing the market for term CP. Concerned about the …

Addressing Urban Income Inequality Through Education: A Case Study In Atlanta, Garrett Bronn

Finance Undergraduate Honors Theses

For decades, the income inequality gap between the rich and poor has continued to expand dramatically, with criticism of existing education systems often at the heart of the issue. Large urban cities are commonly at the forefront of the issue, given the plethora of teacher strikes in recent years. Events such as the 11-day Chicago teacher’s strike in October of 2019 that idled academics and college prep for 350,000 students, have highlighted many current education issues (Hauck, 2019). With underfunded and poorly equipped middle and high schools, students in poor and minority neighborhoods in cities are less prepared academically, ill …

Guarantees And Capital Infusions In Response To Financial Crises C: U.S. 2009 Stress Test, Chase P. Ross, June Rhee, Andrew Metrick

Journal of Financial Crises

When President Obama took office in 2009, the Treasury focused on restarting bank lending and repairing the ability of the banking system as a whole to perform the role of credit intermediation. In order to do so, the Treasury needed to raise public confidence that banks had sufficient buffers to withstand even a very adverse economic scenario, especially given heightened uncertainty surrounding the outlook of the U.S. economy and potential losses in the banking system. The Supervisory Capital Assessment Program (SCAP)—the so-called “stress tests”—sought to rigorously measure the resilience of the largest bank holding companies. Those found to have insufficient …

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.

Incorporating Macroprudential Financial Regulation Into Monetary Policy, Aaron Klein

Journal of Financial Crises

This paper proposes two insights into financial regulation and monetary policy. The first enhances understanding the relationship between them, building on the automobile metaphor that describes monetary policy: when to accelerate or brake for curves miles ahead. Enhancing the metaphor, financial markets are the transmission. In a financial crisis, markets cease to function, equivalent to a transmission shifting into neutral. This explains both monetary policy’s diminished effectiveness in stimulating the economy and why the financial crisis shock to real economic output greatly exceeded central bank forecasts.

The second insight is that both excess leverage and fundamental mispricing of asset values …