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Full-Text Articles in Economic Policy
Lessons Learned: Scott G. Alvarez, Esq., Part 2, Steven Kelly
Lessons Learned: Scott G. Alvarez, Esq., Part 2, Steven Kelly
Journal of Financial Crises
Scott G. Alvarez was general counsel of the Federal Reserve Board during the Global Financial Crisis (GFC). He met with the Yale Program on Financial Stability (YPFS) to discuss a litany of legal aspects related to the Fed’s interventions under its emergency liquidity provision authority under Section 13(3) of the Federal Reserve Act. We summarize some highlights from our interview with Mr. Alvarez. The transcript of this interview, conducted in April 2022, and one from an earlier Lessons Learned interview, in December 2018
United States: Y2k Special Liquidity Facility, Natalie Leonard
United States: Y2k Special Liquidity Facility, Natalie Leonard
Journal of Financial Crises
As the United States prepared for the century date change (Y2K) on January 1, 2000, uncertainty about computer functioning generated uncertainty in capital markets. The Federal Reserve (Fed) grew particularly concerned that computer malfunctioning would cause disruptions in the short-term federal funds and repurchase (repo) markets. Many market participants indicated early in 1999 that they would restrict their normal trading activities and curtail credit in the weeks leading up to Y2K, which contributed to the Fed’s anticipation that liquidity might dry up. To ease pressures, the Fed created two special facilities through the Open Market Trading Desk of the Federal …
United States: Y2k Standby Financing Facility, Natalie Leonard
United States: Y2k Standby Financing Facility, Natalie Leonard
Journal of Financial Crises
As the United States prepared for the century date change (Y2K) on January 1, 2000, uncertainty about computer functioning generated uncertainty in capital markets. The Federal Reserve (Fed) grew particularly concerned that computer malfunctioning would cause disruptions in the short-term federal funds and repurchase agreement (repo) markets. Many market participants indicated early in 1999 that they would restrict their normal trading activities in the weeks leading up to Y2K, which contributed to the Fed’s concern that liquidity might dry up. To ease pressures, the Fed created two special facilities through the Open Market Trading Desk of the Federal Reserve Bank …
United States: Reconstruction Finance Corporation Emergency Lending To Financial Institutions, 1932–1933, Natalie Leonard
United States: Reconstruction Finance Corporation Emergency Lending To Financial Institutions, 1932–1933, Natalie Leonard
Journal of Financial Crises
In the lead-up to the Great Depression, bank credit rapidly expanded and bank capital ratios declined. Banks, suffering from fallen commodity prices, failed at a high rate in the 1920s, and these failures rapidly accelerated in 1930. On January 22, 1932, the Reconstruction Finance Corporation (RFC) was created “to provide emergency financing facilities for financial institutions, to aid in financing agriculture, commerce, and industry, and for other purposes.” The original legislation gave the RFC broad authority to provide collateralized loans to almost any bank or corporation, especially small rural banks that could not access the Federal Reserve’s discount window and …
United States: Federal Home Loan Bank Advances, 1932–1941, Natalie Leonard
United States: Federal Home Loan Bank Advances, 1932–1941, Natalie Leonard
Journal of Financial Crises
In the years preceding the Great Depression (1929–1933), home prices and outstanding mortgage debt grew substantially. Low interest rates and lax lending standards fueled widespread real estate speculation. House prices and housing construction peaked between 1925 and 1927 and then fell rapidly as the depression deepened, unemployment grew, and household income and wealth fell, making loan repayment difficult. In the early 1930s, Congress enacted legislation creating federal agencies to stabilize the banking system, rejuvenate housing finance, and oversee securities markets. One of those federal agencies was the Federal Home Loan Bank System (FHLB System), chartered in 1932 as a wholesale …
United States: Federal Home Loan Bank Advances, 2007–2009, Natalie Leonard
United States: Federal Home Loan Bank Advances, 2007–2009, Natalie Leonard
Journal of Financial Crises
In response to the Global Financial Crisis (2007–2009), financial institutions exposed to the subprime mortgage market faced a loss of confidence by investors and generalized stress in funding markets, restricting financial institutions access to lending. Stigma at the Federal Reserve (the Fed) discount window precluded these financial institutions from turning to the Fed for funding. However, the Federal Home Loan Banks (FHLBanks), a system of cooperatively owned, government-sponsored wholesale banks, served as a significant source of liquidity for their 8,000 member institutions, including commercial and community banks, insurance companies, and thrifts. Between June 2007 and September 2008, “advances”—over-collateralized loans—increased from …
United Kingdom: Discount Window Facility, Sean Fulmer
United Kingdom: Discount Window Facility, Sean Fulmer
Journal of Financial Crises
As the strains of the Global Financial Crisis (GFC) spread internationally in 2008, the Bank of England took measures to provide support to the financial sector. The Bank of England decided to split its Standing Facilities, which faced stigma issues, into the Discount Window Facility (DWF) and Operational Standing Facilities (OSFs). While the OSFs served to set rates and absorb technical frictions in the money markets, the DWF offered banks the opportunity to borrow Treasury-issued gilts for a fee (at a penalty rate), against a range of less liquid collateral. Initially, institutions could borrow for up to 30 days, but …
Hungary: Liquidity Scheme, Carey K. Mott, Alec Buchholtz
Hungary: Liquidity Scheme, Carey K. Mott, Alec Buchholtz
Journal of Financial Crises
Amid the global credit crunch in late 2008, foreign investors dumped Hungarian assets, the Hungarian forint (HUF) depreciated, and liquidity deteriorated in the Hungarian banking sector due to the prevalence of short-term, foreign currency-denominated liabilities. On March 10, 2009, the Hungarian government established a scheme to provide up to HUF 1.1 trillion (USD 4.9 billion) in foreign exchange liquidity to domestic credit institutions and subsidiaries of foreign banks. The government used funds provided by the International Monetary Fund (IMF) and European Union (EU) in October 2008, a USD 25.1 billion package to provide Hungary with sufficient foreign exchange reserves to …
Hong Kong: Temporary Liquidity Measures, 2008, Benjamin Hoffner
Hong Kong: Temporary Liquidity Measures, 2008, Benjamin Hoffner
Journal of Financial Crises
In September 2008, Hong Kong’s interbank market tightened after the Bank of East Asia experienced a deposit run, prompting the Hong Kong Monetary Authority (HKMA) to roll out five novel liquidity measures. The first three of these measures expanded the scope of HKMA’s discount window, offering term loans of up to three months, accepting additional collateral options, and lowering the rate charged. In the last two measures, the HKMA created one facility that allowed banks to request foreign exchange swaps and another that permitted the HKMA to extend collateralized term loans at market rates using its discretion. Although these measures …
Hong Kong: Private Emergency Loans, 1965, Benjamin Hoffner
Hong Kong: Private Emergency Loans, 1965, Benjamin Hoffner
Journal of Financial Crises
In 1965, new prudential regulations and a real estate downturn triggered deposit runs in the British colony of Hong Kong that impacted local Chinese banks with large exposures to unfinished real estate projects and other illiquid assets. As a result of authorities’ laissez-faire approach to the banking system, Hong Kong had no central bank or any other formal lender-of-last-resort (LOLR) policy when the crisis unfolded. Instead, two private British banks, Hong Kong and Shanghai Banking Corporation (HSBC) and Chartered Bank, provided emergency loans at market rates for commercial banks facing deposit withdrawals. Following each bank run, either HSBC or Chartered …
Canada: Private-Sector Term Purchase And Resale Agreements, Priya Sankar
Canada: Private-Sector Term Purchase And Resale Agreements, Priya Sankar
Journal of Financial Crises
With Canadian banks curtailing their funding in response to the Global Financial Crisis, liquidity dried up in money markets and bond markets. On October 14, 2008, the Bank of Canada (BoC) announced its first Private-Sector Term PRA facility to provide liquidity to large money-market participants, such as asset managers, who were not traditional BoC counterparties and could not access the BoC’s other emergency liquidity facilities (“PRA” is short for purchase and resale agreement, similar to a repo). The program accepted commercial paper, asset-backed commercial paper, and bankers’ acceptances as collateral. It complemented the BoC’s Term PRA for primary dealers (the …
Canada: Term Loan Facility, Priya Sankar
Canada: Term Loan Facility, Priya Sankar
Journal of Financial Crises
As the Global Financial Crisis deepened into late 2008, liquidity continued to deteriorate in Canadian credit markets. Canadian financial institutions curtailed their lending, which increased funding costs and reduced market-wide liquidity. In response, the Bank of Canada (BoC) took extraordinary measures to provide liquidity to financial market participants and improve credit conditions. On November 12, 2008, the BoC established the Term Loan Facility (TLF) to extend credit at a penalty rate for terms of approximately one month. The TLF was available to 14 major banks that were direct participants in Canada’s payments system, the Large Value Transfer System. Participants could …
Canada: Term Purchase And Resale Agreement Facility, Priya Sankar
Canada: Term Purchase And Resale Agreement Facility, Priya Sankar
Journal of Financial Crises
With Canadian banks curtailing their funding in response to the Global Financial Crisis, liquidity dried up in money markets and bond markets. On October 14, 2008, the Bank of Canada (BoC) announced its first Private-Sector Term PRA facility to provide liquidity to large money-market participants, such as asset managers, who were not traditional BoC counterparties and could not access the BoC’s other emergency liquidity facilities (“PRA” is short for purchase and resale agreement, similar to a repo). The program accepted commercial paper, asset-backed commercial paper, and bankers’ acceptances as collateral. It complemented the BoC’s Term PRA for primary dealers (the …