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Lessons Learned: Deborah Perelmuter, Mercedes Cardona
Lessons Learned: Deborah Perelmuter, Mercedes Cardona
Journal of Financial Crises
Deborah Perelmuter has spent more than three decades with the Federal Reserve System. In 2008, as senior vice president at the Federal Reserve Bank of New York (FRBNY) and co-head of Capital Markets Analysis and Trading (CMAT) within the Markets Group, she was tasked with setting up the operational details of the Term Securities Lending Facility (TSLF). The TSLF auctioned Treasury securities to primary dealers in exchange for less liquid collateral to provide liquidity to those firms during the Global Financial Crisis of 2007–2009. Perelmuter became senior financial stability adviser within the office of the director in the FRBNY’s Research …
Lessons Learned: Patrick Honohan, Maryann Haggerty
Lessons Learned: Patrick Honohan, Maryann Haggerty
Journal of Financial Crises
Patrick Honohan, an economist, was governor of the Central Bank of Ireland and a member of the Governing Council of the European Central Bank (ECB) from September 2009 until November 2015. Early in his tenure, he led a team that investigated the causes of the Irish banking crisis that broke out in 2008 during the Global Financial Crisis. Resolving the problems of bank failure and over-indebtedness that emerged in that crisis dominated his term of office. In late 2010, Ireland had to request financial assistance from the “troika” of the International Monetary Fund (IMF), the European Commission, and the European …
Lessons Learned: Andrew Gray, Mercedes Cardona
Lessons Learned: Andrew Gray, Mercedes Cardona
Journal of Financial Crises
Andrew Gray joined the FDIC in 2007, after having been majority director of communications for the US Senate Committee on Banking, Housing, and Urban Affairs and press secretary for US Senator Richard C. Shelby (R–AL). Gray’s initial project was a campaign to mark the 75th anniversary of the creation of the Federal Deposit Insurance Corporation (FDIC); his role evolved into running crisis communications as the FDIC stepped in during several bank failures triggered by the Global Financial Crisis (GFC) and conducted 489 bank resolutions during 2008–2013. After the crisis, the FDIC also assumed new responsibilities over the winding down of …
Peru: Reserve Requirements, Gfc, Sean Fulmer, Bailey Decker
Peru: Reserve Requirements, Gfc, Sean Fulmer, Bailey Decker
Journal of Financial Crises
Peru experienced the Global Financial Crisis of 2007–2009 (GFC) in two distinct phases. First, starting in the summer of 2007, record capital inflows to the Peru banking sector contributed to an overheating economy. The Banco Central de Reserva del Perú (BCRP) responded in September 2007 by removing reserve requirements on long-term external credit to promote long-term, rather than short-term, capital inflows. In February 2008, for similar reasons, it began to raise the ordinary minimum reserve requirement on bank liabilities and implemented new marginal reserve requirements on increases in those liabilities. Second, when the collapse of the US investment bank Lehman …
Jamaica: Reserve Requirements, Gfc, Corey N. Runkel
Jamaica: Reserve Requirements, Gfc, Corey N. Runkel
Journal of Financial Crises
In October 2008, the Global Financial Crisis (GFC) and liquidity shortages rocked American and European markets, causing investors to exit liquid Jamaican-dollar assets. The Bank of Jamaica (BOJ) feared a “disorderly depreciation” in the Jamaican-dollar (JMD) exchange rate to the US dollar (BOJ 2009, 44). In response, the BOJ raised required reserve ratios for cash and other liquid assets, the first increases since 2002. The BOJ raised reserve ratios three times—in December 2008, January 2009, and February 2009—because the central bank could not change its requirements by more than 200 basis points per month. The BOJ raised the requirement for …
Ireland: Credit Institution (Financial Support) Scheme, 2008, Stella Schaefer-Brown
Ireland: Credit Institution (Financial Support) Scheme, 2008, Stella Schaefer-Brown
Journal of Financial Crises
The Global Financial Crisis exposed fragilities in the Irish banking system and led to widespread runs on Irish banks. Irish authorities attempted to address the runs on September 22, 2008, by increasing the country’s deposit guarantee limit from EUR 20,000 to EUR 100,000 (USD 28,800 to USD 140,000) and raising the coverage of deposits from 90% to 100%. When the runs continued, the Irish minister for finance announced a blanket guarantee of bank liabilities on September 30 without consulting European Union authorities. The announcement specified the blanket guarantee would be effective immediately and remain in effect for two years. The …
Denmark: General Guarantee Scheme, 2008, Benjamin Hoffner
Denmark: General Guarantee Scheme, 2008, Benjamin Hoffner
Journal of Financial Crises
As foreign credit in Denmark dried up during the summer of 2008, Danish banks became increasingly reliant on short-term borrowing. The government took over the failing Roskilde Bank, the country’s eighth-largest bank, in late August. On October 5, 2008, the government announced a voluntary General Guarantee Scheme to fully insure deposits and other senior liabilities of participating banks. Banks could participate in the scheme by becoming members of the financial sector’s banking consortium, Det Private Beredskab, or in English, the Private Contingency Association (PCA), before October 13, 2008. The General Guarantee Scheme fully insured all depositors and senior unsecured creditors …
Lessons Learned: David Wilcox, Mercedes Cardona
Lessons Learned: David Wilcox, Mercedes Cardona
Journal of Financial Crises
David Wilcox was the deputy director of the Division of Research and Statistics of the Federal Reserve Board of Governors during the Global Financial Crisis of 2007-¬09. He assisted in developing the Federal Reserve policy response that ultimately stabilized the economy by providing insight into the economic and financial outlook to the Federal Open Market Committee (FOMC) prior to each of its policy-setting meetings. Wilcox became director of the division in 2011 and served in that role through 2018, acting as the division’s chief economist, manager, and the senior adviser to three Fed chairs. After leaving the Fed, he joined …
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
Norway: Covered Bond Swap Program, Sean Fulmer
Norway: Covered Bond Swap Program, Sean Fulmer
Journal of Financial Crises
As the Global Financial Crisis spread, liquidity strains appeared in Norwegian money markets, limiting banks from accessing high-quality and long-term financing. In response, on October 24, 2008, the Norwegian government authorized a Norwegian krone (NOK) 350 billion (USD 50 billion) covered bond swap program to be operated by Norges Bank, the central bank, on behalf of the Ministry of Finance. Under this program, Norwegian commercial banks, savings banks, and, later, mortgage companies could exchange certain covered bonds, known in Norwegian as obligasjoner med fortrinnrett (OMFs), for treasury bills. Pricing was determined in an auction. In each auction, Norges Bank set …
Greece: Emergency Liquidity Assistance, Corey N. Runkel
Greece: Emergency Liquidity Assistance, Corey N. Runkel
Journal of Financial Crises
The Global Financial Crisis of 2007-09 triggered a deep recession in Greece, leading investors to withdraw one third of Greek bank deposits between 2008 and 2011. As banks’ nonperforming assets rose and rating agencies downgraded Greek sovereign debt, Greek banks’ capital fell below levels required for Eurosystem refinancing operations. In response, the Bank of Greece (BOG) provided Emergency Liquidity Assistance (ELA) to all Greek banks. ELA was a revolving credit line open to solvent institutions at a premium rate, so long as that support did not interfere with the Eurosystem’s monetary policy. European Central Bank (ECB) rules required the BOG …
European Central Bank: Term Refinancing Operations, Corey N. Runkel
European Central Bank: Term Refinancing Operations, Corey N. Runkel
Journal of Financial Crises
During the Global Financial Crisis (GFC), the European Central Bank (ECB) expanded the frequency, maturities, size, and set of eligible collateral for several of its standing term refinancing operations (TROs). Changes started in August 2007, when the European interbank market tightened, and the ECB supplemented its monthly longer-term refinancing operations (LTROs) with another three-month-maturity tender each month. Another encounter with market turbulence in March 2008 brought six-month LTROs. The largest expansion came after the collapse of Lehman Brothers in September 2008: the ECB enlarged its set of eligible collateral, added 12-month LTROs, and added special-term refinancing operations (STROs) that matured …
European Central Bank: Fine-Tuning Operations, Corey N. Runkel
European Central Bank: Fine-Tuning Operations, Corey N. Runkel
Journal of Financial Crises
Credit in the European interbank market tightened in August 2007 as banks sustained losses in mortgage-backed securities markets. On August 9, the European Central Bank (ECB) announced a EUR 95 billion fine-tuning operation (FTO). The Eurosystem continued providing FTOs carrying overnight maturities through the next three business days. Two more bouts of interbank funding stress—in March and September 2008—caused the ECB to deploy more FTOs. The ECB provided liquidity through 12 emergency, overnight FTOs, all but one at least EUR 25 billion in size. All operations, except the first and last, used variable-rate, fixed-allotment auctions. The first and last operations …
United States: Transaction Account Guarantee Program, Ezekiel Vergara
United States: Transaction Account Guarantee Program, Ezekiel Vergara
Journal of Financial Crises
The collapse of Lehman Brothers in September 2008 led many uninsured depositors to withdraw their funds from US banks that they perceived as troubled. To reassure depositors, the Federal Deposit Insurance Corporation (FDIC), on October 14, 2008, guaranteed certain debt and deposits through its Temporary Liquidity Guarantee Program (TLGP). The Temporary Account Guarantee Program (TAGP) was one component of the TLGP. Through the TAGP, the FDIC provided unlimited insurance to noninterest-bearing transaction accounts (NIBTAs) and other low-interest-bearing accounts. On October 3, 2008, the US Congress had increased the limit on insured deposits to $250,000. By guaranteeing these accounts in full, …
United States: Temporary Guarantee Program For Money Market Funds, Ezekiel Vergara
United States: Temporary Guarantee Program For Money Market Funds, Ezekiel Vergara
Journal of Financial Crises
On September 16, 2008, following the collapse of Lehman Brothers, the Reserve Primary Fund “broke the buck,” meaning that its net asset value (NAV) fell more than 0.5% below the $1 per share target value maintained by money-market funds (MMFs). When the Reserve Primary Fund could not restore the NAV, investors began withdrawing funds from MMFs, leading to a $439 billion run on the MMF market. To stop this run, the US Department of the Treasury established the Temporary Guarantee Program for Money Market Funds (the Guarantee Program), which insured investors’ holdings in participating MMFs. The Guarantee Program was designed …
Taiwan (Roc): Central Deposit Insurance Corporation, Lily S. Engbith
Taiwan (Roc): Central Deposit Insurance Corporation, Lily S. Engbith
Journal of Financial Crises
In September 2008, the failure of a large Taiwanese bank led depositors to shift billions of dollars from private banks to state-owned banks. To stem the runs, the government on October 7 invoked its authority under Articles 28 and 29 of the Deposit Insurance Act to announce a temporary, unlimited guarantee on all deposit accounts of institutions covered by the Central Deposit Insurance Corporation (CDIC). In addition to removing the previous TWD 3 million (USD 90,000) cap per depositor, the expanded coverage included several types of deposit accounts that had not been previously insured by the CDIC. As the CDIC’s …
United Kingdom: Financial Services Compensation Scheme, Ezekiel Vergara
United Kingdom: Financial Services Compensation Scheme, Ezekiel Vergara
Journal of Financial Crises
In mid-September 2007, as credit markets froze, Northern Rock, the United Kingdom’s fifth-largest mortgage bank, struggled to secure short-term funding and sought emergency liquidity assistance from the Bank of England (BoE). As word of that support leaked to the public, the bank suffered a run by its retail depositors. On September 17, Her Majesty’s Treasury (HMT) announced it would guarantee all of Northern Rock’s deposits. On October 1, 2007, the Financial Services Authority (FSA), then the UK’s lead financial regulator, announced that the UK’s deposit insurer would abolish co-insurance and cover 100% of eligible accounts, up to GBP 35,000 (USD …
Swiss Banks’ And Securities Dealers’ Depositor Protection Association, Ezekiel Vergara
Swiss Banks’ And Securities Dealers’ Depositor Protection Association, Ezekiel Vergara
Journal of Financial Crises
During the Global Financial Crisis (GFC), Swiss authorities adopted changes to their deposit-insurance system, partly in response to similar measures by neighboring countries. On November 5, 2008, the Swiss finance minister announced that Switzerland would propose legislation to increase depositor coverage from CHF 30,000 to CHF 100,000 (USD 85,400). Swiss authorities also increased the maximum amount of ex-post contributions they could levy from CHF 4 billion to CHF 6 billion. The Swiss Banks’ and Securities Dealers’ Depositor Protection Association (ESI), Switzerland’s standing deposit-insurance body, administered its federal deposit-insurance system. The ESI was privately administered, was compulsory for nearly all deposit-taking …
Spain: Deposit Guarantee Funds, Ezekiel Vergara
Spain: Deposit Guarantee Funds, Ezekiel Vergara
Journal of Financial Crises
On October 10, 2008, Spanish authorities increased the amount insured under its three Fondos de Garantía de Depósitos (FGDs), Spain’s deposit-insurance schemes, from EUR 20,000 to EUR 100,000 (USD 27,200 to USD 136,000). By raising this limit, which was meant to be a permanent change to the banking system, Spanish authorities intended to bolster depositor confidence while exceeding a recent European Union (EU) recommendation to expand such coverage to at least EUR 50,000. Membership in one of the FGDs was compulsory for banks, cajas (savings banks), and cooperatives, each of which had a separate fund. These institutions paid a 0.2% …
Slovenia: Unlimited Deposit Guarantee, Ezekiel Vergara
Slovenia: Unlimited Deposit Guarantee, Ezekiel Vergara
Journal of Financial Crises
On October 7, 2008, as the European Union (EU) coordinated its members’ response to the Global Financial Crisis (GFC), its Economic and Financial Council (ECOFIN) recommended that member states raise their deposit-insurance coverage to at least EUR 50,000 (USD 67,000). Germany and Austria went further and adopted an unlimited guarantee of deposits. In response, Slovenia announced its Unlimited Deposit Guarantee on October 8, 2008. Slovenia’s national assembly adopted the program on November 11, 2008, effective November 20. The Bank of Slovenia (BoS) administered the program, as it had Slovenia’s existing deposit-insurance scheme. When an insured bank failed, fees were imposed …
Russia: Deposit Insurance Agency (2008–2009), Ezekiel Vergara
Russia: Deposit Insurance Agency (2008–2009), Ezekiel Vergara
Journal of Financial Crises
Russian authorities responded to the Global Financial Crisis (GFC) in September and October 2008 with various measures to provide liquidity to the banking sector and restore market confidence. Among these, on October 13, 2008, Russia amended its deposit insurance system. This amendment increased the deposit insurance cap from RUB 400,000 to RUB 700,000 (about USD 15,000 to USD 26,000) and abolished co-insurance, increasing the guarantee’s full coverage of deposits from 90% to 100%. The Deposit Insurance Agency (DIA) administered the deposit insurance system. It covered all household deposit accounts and was mandatory for all banks operating in Russia. Banks were …
Singapore: Government Guarantee On Deposits, Ezekiel Vergara
Singapore: Government Guarantee On Deposits, Ezekiel Vergara
Journal of Financial Crises
On October 16, 2008, following the collapse of Lehman Brothers on September 15 and the introduction of Hong Kong’s unlimited deposit guarantee on October 14, Singapore announced its Government Guarantee on Deposits (GGD). The GGD was meant “to avoid an erosion of banks’ deposit base and ensure a level international playing field for banks in Singapore.” It was administered by the Monetary Authority of Singapore (MAS), Singapore’s central bank and financial regulatory body, and was backed by government reserves totaling SGD 150 billion (about USD 100 billion). The program expanded upon Singapore’s pre-crisis guarantee of SGD 20,000, which was administered …
Romania: Bank Deposit Guarantee Fund, Ezekiel Vergara
Romania: Bank Deposit Guarantee Fund, Ezekiel Vergara
Journal of Financial Crises
Following international calls to strengthen deposit-insurance systems during the Global Financial Crisis (GFC), Romanian authorities increased their deposit-insurance coverage from EUR 20,000 to EUR 50,000 (USD 26,800 to USD 67,000) on October 14, 2008, with the change coming into effect the next day. The Fondul de Garantare a Depozitelor Bancare (FGDB), Romania’s existing deposit insurer, implemented it. Membership was mandatory for all banks registered with the National Bank of Romania (NBR), and local branches of foreign banks could apply for supplementary coverage if their home coverage was below EUR 50,000. The FGDB covered most deposit accounts and charged participating institutions …
Philippine Deposit Insurance Corporation, Lily S. Engbith
Philippine Deposit Insurance Corporation, Lily S. Engbith
Journal of Financial Crises
At the height of the Global Financial Crisis in October 2008, moves by other countries to expand the scope of their bank deposit insurance led the Philippine government to consider similar measures. Unlike most countries, however, the government did not make the changes immediately. After a lengthy legislative process, the President signed a bill on April 29, 2009, doubling the Philippine Deposit Insurance Corporation’s (PDIC’s) coverage from PHP 250,000 to PHP 500,000 (about USD 5,300 to USD 10,600) per depositor, with any losses in excess of PHP 250,000 covered by the national government. The changes took effect on June 1, …
Malaysia: Government Deposit Guarantee, Ezekiel Vergara
Malaysia: Government Deposit Guarantee, Ezekiel Vergara
Journal of Financial Crises
On October 16, 2008, following the collapse of Lehman Brothers and regional expansions of deposit insurance, Malaysia announced its Government Deposit Guarantee (GDG), an unlimited guarantee of deposits held at eligible institutions. Given the “soundness and strong capitalization” of the banking sector, the preemptive program was meant “to maintain the stability of the Malaysian financial system.” Prior to the crisis, the Perbadanan Insurans Deposit Malaysia (PIDM), Malaysia’s deposit-insurance agency, guaranteed up to MYR 60,000 (USD 17,291) per depositor per insured institution. The PIDM was tasked with administering the GDG. Under the GDG, the PIDM insured all ringgit and foreign-currency deposits. …
New Zealand: Crown Retail Deposit Guarantee Scheme, Ezekiel Vergara
New Zealand: Crown Retail Deposit Guarantee Scheme, Ezekiel Vergara
Journal of Financial Crises
The collapse of Lehman Brothers in 2008 led to a global financial crisis. Leaders of the G-7 countries agreed on October 10, 2008, to five principles for addressing the crisis, including the need for sound deposit insurance. On October 12, Australia’s prime minister announced a deposit insurance program that his government had first publicly vetted in June. Anticipating Australia’s announcement, New Zealand’s prime minister announced its own deposit guarantee scheme on the same afternoon. The government launched the Crown Retail Deposit Guarantee Scheme (the Scheme) “to ensure ongoing retail depositor confidence in New Zealand’s financial system, given turbulence in the …
Association For The Guarantee Of Deposits Luxembourg, Ezekiel Vergara
Association For The Guarantee Of Deposits Luxembourg, Ezekiel Vergara
Journal of Financial Crises
During the Global Financial Crisis (GFC), Luxembourgish officials in October 2008 announced plans to raise the country’s deposit-insurance cap to EUR 100,000 (USD 134,000) and eliminate co-insurance. Prior to the GFC, Luxembourg’s deposit-insurance system covered 90% of deposits in eligible accounts up to EUR 22,222, with depositors responsible for the remaining 10%. On December 19, 2008, the legislature increased the cap to EUR 100,000 and removed the co-insurance, effective January 1, 2009. The Association Pour la Garantie des Dépôts Luxembourg (AGDL), a private deposit-insurance body, administered these changes. All deposit-taking institutions and approved investment firms, except branches of foreign banks, …
Latvia: Deposit Guarantee Fund, Ezekiel Vergara
Latvia: Deposit Guarantee Fund, Ezekiel Vergara
Journal of Financial Crises
During the Global Financial Crisis (GFC), Latvian authorities raised the country’s deposit-insurance cap from EUR 20,000 to EUR 50,000 (USD 26,800 to USD 67,000) in response to international calls to bolster deposit-insurance systems. They passed the measure on October 16, 2008, and it came into effect two days later. The Financial and Capital Market Commission (FCMC), Latvia’s prudential supervisor and existing deposit administrator, oversaw the guarantee. The FCMC covered most types of deposit accounts and insured all Latvian-registered deposit-taking institutions, including some foreign-bank branches operating in Latvia. The FCMC charged quarterly premiums on insured accounts and could levy additional fees …
Kuwait: Unlimited Deposit Guarantee, Sharon M. Nunn
Kuwait: Unlimited Deposit Guarantee, Sharon M. Nunn
Journal of Financial Crises
On October 26, 2008, at the height of the Global Financial Crisis, the Central Bank of Kuwait (CBK) announced that it would support Gulf Bank, the country’s third-largest bank, which had sustained losses on clients’ derivatives trades. In the same announcement, it said it would ask the government to guarantee all banking deposits to shore up confidence in banks and to keep Kuwait’s banking system competitive with those of other countries, including neighboring Saudi Arabia and the United Arab Emirates, which had already announced unlimited deposit guarantees. The legislature passed an unlimited deposit guarantee bill eight days later. Kuwait did …
Indonesia Deposit Insurance Corporation, Lily S. Engbith
Indonesia Deposit Insurance Corporation, Lily S. Engbith
Journal of Financial Crises
To address the risk of capital flight to neighboring countries during the Global Financial Crisis, the Indonesian government raised the limit on insured deposits 20-fold from IDR 100 million to IDR 2 billion per account (about USD 200,000). The President issued two government regulations on October 13, 2008. The first was an emergency decree that authorized the government, in consultation with the Indonesian Parliament, to alter the limit in times of systemic financial distress. The second was a government regulation enacting the actual increase, which has remained in effect since the crisis. All banks operating within Indonesia, including branches of …