Economic History Commons^™

The Hungarian Guarantee Scheme (Hungary Gfc), Alec Buchholtz

Journal of Financial Crises

In the midst of the global financial crisis, in October 2008, the Magyar Nemzeti Bank (MNB), the Hungarian national bank, noticed a selloff of government securities by foreign banks and a large depreciation in the exchange rate of the Hungarian forint (HUF) in foreign exchange (FX) markets. Hungarian banks experienced liquidity pressures due to margin calls on FX swap contracts, prompting the MNB and Minister of Finance to seek assistance from the International Monetary Fund (IMF), the European Central Bank (ECB) and the World Bank. The IMF and ECB approved Hungary’s requests in late 2008 to create a €20 billion …

The Guarantee Scheme For Bank Funding In Finland (Finland Gfc), Lily Engbith

Journal of Financial Crises

As the global financial crisis raged in October 2008, its severe impact on global credit markets impelled governments to enact stabilization measures to calm and protect their domestic economies. The Republic of Finland, though not directly affected, designed preemptive interventions to mitigate disruption to its financial system. Among them was the Guarantee Scheme for Bank Funding in Finland (the Guarantee Scheme), announced on October 22, 2008, and implemented on February 12, 2009, which aimed to support banks and mortgage institutions with their short- and medium-term financing needs. Under the program, the Finnish State Treasury made up to €50 billion available …

Bank Debt Guarantee Programs, Christian M. Mcnamara, Greg Feldberg, David Tam, Andrew Metrick

Journal of Financial Crises

One of the hallmarks of the global financial crisis of 2007-09 was the rapid evaporation of the non-deposit, wholesale funding many financial institutions had become increasingly reliant upon in the years leading up to the crisis. In the aftermath of the Lehman Brothers bankruptcy, governments became increasingly concerned about even fundamentally sound institutions’ ability to access necessary funding. In response, beginning in October 2008, authorities across the globe began introducing guarantee programs enabling institutions to issue debt that would be backed by a guarantee from the government in exchange for a guarantee fee. While the specific details of these programs …

Denmark's Loan Bills Temporary Credit Facility (Denmark Gfc), Keni Sabath

Journal of Financial Crises

The loan bills temporary credit facility was first implemented in May 2008, before the Global Financial Crisis had truly hit Denmark. It continued to be utilized as part of a broader effort to increase interbank lending after the collapse of Lehman Brothers in September 2008. The objective of the loan bills scheme was to facilitate lending among financial institutions. Each week, loan bills could be pledged as collateral for a seven-day loan from Denmark’s central bank, Danmarks Nationalbank. One banking institution could borrow from another institution by issuing a loan bill, and the institution buying the bill could raise liquidity …

Denmark's Excess-Capital Temporary Credit Facility (Denmark Gfc), Keni Sabath

Journal of Financial Crises

During the interbank market freeze following the Lehman Brothers collapse in September 2008, Denmark’s central bank, Danmarks Nationalbank, used a series of unconventional monetary policy instruments to increase market liquidity. One such action included the introduction of the excess-capital temporary credit facility, also known as the solvency scheme. Under this facility, credit lines from Danmarks Nationalbank could be provided to banks and mortgage-credit institutions on the basis of their excess capital adequacy, calculated as the difference between their base capital and their capital need. The purpose of this facility was to ease the tight liquidity situation by providing access to …

The United Kingdom's Corporate Bond Secondary Market Scheme (U.K. Gfc), Claire Simon

Journal of Financial Crises

In late 2008, at the height of the Global Financial Crisis, increased liquidity premia and risk aversion in the secondary market hindered companies’ ability to issue corporate bonds. In response, in January 2009, Her Majesty’s Treasury authorized the Bank of England to establish a facility to purchase commercial bonds through the Asset Purchase Facility. In March 2009, the Bank of England published details on the Corporate Bond Secondary Market Scheme, in conjunction with its quantitative easing program. Under the scheme, the Bank acted as a market maker of last resort in the secondary bond market, making regular purchases of a …

Japan's Special Funds-Supplying Operations (Japan Gfc), Alec Buchholtz

Journal of Financial Crises

Following the collapse of Lehman Brothers in September 2008, the global commercial paper (CP) market began to tighten as interest rates rose and investors sought more-liquid money market securities. The Bank of Japan (BOJ) introduced several measures in late 2008 to make liquidity available to nonfinancial corporations that were strapped for cash. In December 2008, the BOJ implemented special funds-supplying operations in order to provide unlimited liquidity to banks and other financial institutions so they could continue to fund nonfinancial corporations. The BOJ would provide one- to three-month loans against an equal value of eligible corporate debt at a rate …

Japan's Outright Purchases Of Commercial Paper (Japan Gfc), Alec Buchholtz

Journal of Financial Crises

Following the collapse of Lehman Brothers in September 2008, the global commercial paper (CP) market began to tighten as interest rates rose and investors sought more-liquid money market securities. The Bank of Japan (BOJ) introduced several operations in late 2008 to promote liquidity in the CP market. In January 2009, the BOJ began to purchase CP and asset-backed CP outright from banks and other financial institutions. The BOJ could purchase up to ¥3 trillion of CP with a residual maturity of up to three months, among other short-term securities, via 10 purchases of up to ¥300 billion each. The BOJ …

The European Central Bank's Covered Bond Purchase Programs I And Ii (Ecb Gfc), Ariel Smith

Journal of Financial Crises

In July 2009, the European Central Bank introduced a nonstandard measure to revitalize the European covered bond market, which at the time financed about one-fifth of mortgages in Europe. The market struggled after the collapse of Lehman Brothers as the global financial crisis intensified in 2008. Over the course of the program, which lasted 12 months, European central banks, collectively known as “the Eurosystem,” conducted direct purchases in both primary and secondary markets to a total of €60 billion of covered bonds. The Eurosystem held the purchased covered bonds until maturity and made them eligible for lending to counterparties as …

The European Central Bank's Securities Markets Programme (Ecb Gfc), Ariel Smith

Journal of Financial Crises

The Eurozone struggled during the escalation of the sovereign debt crisis in 2010. In order to aid malfunctioning securities markets, restore liquidity, and enable proper functioning of the monetary policy transmission mechanism, the European Central Bank (ECB) instituted the Securities Markets Programme (SMP) on May 9, 2010. This program enabled Eurosystem central banks to purchase securities from entities in Greece, Ireland, Portugal, Italy, and Spain. The program ended on September 6, 2012, and evaluations of its effectiveness are mixed.

The European Central Bank's Three-Year Long-Term Refinancing Operations (Ecb Gfc), Aidan Lawson

Journal of Financial Crises

The announcement of the three-year Long-Term Refinancing Operations (LTROs) by the European Central Bank (ECB) on December 8, 2011, signaled the beginning of the largest ECB market liquidity programs to date. Continued and increasing liquidity-related pressures in the form of ballooning financial market credit default swap (CDS) spreads, Euro-area volatility, and interbank lending rates prompted a much more forceful ECB response than what had been done previously. The LTROs, using a repurchase (repo) agreement auction mechanism, allowed any Eurozone financial institution to tap essentially unlimited funding at a fixed rate of just 1%. Because the three-year LTROs were so similar …

The Public-Private Investment Program: The Legacy Securities Program (U.S. Gfc), Ben Henken

Journal of Financial Crises

On March 23, 2009, the U.S. Treasury, in conjunction with the Federal Reserve (Fed) and the Federal Deposit Insurance Corporation (FDIC), announced the Public-Private Investment Program (PPIP). PPIP consisted of two complementary programs designed to foster liquidity in the market for certain mortgage-related assets: The Legacy Loans Program and the Legacy Securities Program. This case study discusses the design and implementation of the Legacy Securities Program. Under this program, the Treasury formed an investment partnership with nine private sector firms it selected at the conclusion of a months-long application process. Using a combination of private equity and debt and equity …

The Public-Private Investment Program: The Legacy Loans Program (U.S. Gfc), Ben Henken

Journal of Financial Crises

On March 23, 2009, the U.S. Treasury, in conjunction with the Federal Reserve (Fed) and the Federal Deposit Insurance Corporation (FDIC), announced the Public-Private Investment Program (PPIP). PPIP consisted of two complementary programs designed to foster liquidity in the market for certain mortgage-related assets: The Legacy Loans Program and the Legacy Securities Program. This case study discusses the design and implementation of the Legacy Loans Program. Under this program, the FDIC and Treasury attempted to create public-private investment partnerships that—using a combination of private equity, Treasury equity, and FDIC-guaranteed debt—would purchase legacy mortgage loans from U.S. banks by way of …

The Term Asset-Backed Securities Loan Facility (Talf) (U.S. Gfc), June Rhee

Journal of Financial Crises

In the fall of 2008, the securitization market, which was the major provider of credit for consumers and small businesses, came to a near halt. Investors in this market abandoned not only the residential mortgage-backed securities that triggered the financial crisis but also consumer and business asset-backed securities (ABS), which had a long track record of strong performance, and commercial mortgage-backed securities (CMBS). Also, the unprecedented widening of spreads for these securities rendered new issuance uneconomical, and the shutdown of the securitization market threatened to exacerbate the downturn in the economy.

On November 25, 2008, the Federal Reserve (the Fed) …

The Money Market Investor Funding Facility (U.S. Gfc), Rosalind Z. Wiggins

Journal of Financial Crises

In mid-September 2008, money market mutual funds (MMMFs) began to experience run-like redemption requests after the Reserve Primary Fund “broke the buck.” As a result, MMMFs became reluctant to roll over or invest in commercial paper (CP) and faced the prospect of selling asset-backed commercial paper (ABCP) they held into a declining market to raise cash. The money markets quickly became negatively impacted, and on October 21, 2008, the Fed announced the Money Market Investor Funding Facility (MMIFF), which would loan funds to a series of special purpose vehicles (SPVs) established by the private sector. The SPVs would use the …

The Commercial Paper Funding Facility (U.S. Gfc), Rosalind Z. Wiggins

Journal of Financial Crises

In mid-September 2008, prime money market mutual funds (MMMFs) began experiencing run-like redemption requests sparked by one fund that had “broken the buck” because of large exposure to Lehman Brothers commercial paper (CP). As a result, MMMFs, which are significant investors in CP, became reluctant to hold CP. Within a week, outstanding CP had been reduced by roughly $300 billion. The CP market experienced severe shortening of maturities and increased rates, making it difficult for issuers to place new paper. When government efforts to assist the MMMFs did not resolve the stresses in the CP market, the Federal Reserve announced, …

The Primary Dealer Credit Facility (Pdcf) (U.S. Gfc), Karen Yang

Journal of Financial Crises

On March 16, 2008, the Federal Reserve created the Primary Dealer Credit Facility, or PDCF, to provide overnight funding to primary dealers in the tri-party repurchase agreement (repo) market, where lenders had become increasingly risk averse. Loans were fully secured by (initially) investment-grade securities and offered at the primary credit rate by the Federal Reserve Bank of New York. The eligible collateral was significantly expanded in September 2008, after rumors of Lehman Brothers potentially filing for bankruptcy, to include all of the types of instruments that could be pledged at the two major tri-party repo clearing banks. The PDCF was …

The Federal Reserve’S Response To The 1987 Market Crash (U.S. Historical), Kaleb B. Nygaard

Journal of Financial Crises

The S&P 500 lost 10% the week ending Friday, October 16, 1987, and lost an additional 20% the following Monday, October 19, 1987. The date would be remembered as Black Monday. The Federal Reserve (the Fed) responded to the crash in four distinct ways: (1) issuing a public statement promising to provide liquidity, as needed, “to support the economic and financial system”; (2) providing support to the Treasury securities market by injecting in-high-demand maturities into the market via reverse repurchase agreements; (3) allowing the federal funds rate to fall from 7.5% to 7.0% and below; and (4) intervening directly to …

Lessons Learned: A Conversation With Paul A. Volcker, Andrew Metrick, Rosalind Z. Wiggins, Kaleb B. Nygaard

Journal of Financial Crises

On March 26, 2019, Andrew Metrick, the Janet Yellen Professor of Finance at the Yale School of Management and Founder and Director of the Yale Program on Financial Stabilitysat down with Paul A. Volcker to discuss his perspectives on the Federal Reserve, central banking autonomy, “too big to fail,” and how his perspectives on these topics have changed over the decades.It turned out to be one of the last interviews given by the former Chairman of the Federal Reserve System who passed away on December 8, 2019, at the age of 92.

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 …

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 …

The Federal Reserve’S Financial Crisis Response C: Providing U.S. Dollars To Foreign Central Banks, Rosalind Z. Wiggins, Andrew Metrick

Journal of Financial Crises

The financial crisis that began in late 2007 with the decline in the United States (U.S.) subprime mortgage markets quickly spread to other markets and eventually disrupted the interbank funding markets in the U.S. as well as overseas. To address the strain in the U.S. dollar (USD) funding markets, the Federal Reserve worked with foreign central banks around the world to provide USD liquidity to affected overseas markets by entering into currency swap agreements. Following the bankruptcy of Lehman Brothers in September 2008, and the resulting further destabilization of the world’s financial systems, the size and utilization of these swaps …

The Federal Reserve’S Financial Crisis Response B: Lending & Credit Programs For Primary Dealers, Rosalind Z. Wiggins, Patricia C. Mosser, Andrew Metrick

Journal of Financial Crises

Beginning in the summer 2007 the Federal Reserve (the Fed) deployed numerous conventional and innovative programs to address the credit crisis occurring in the wholesale lending markets that was beginning to affect the broader financial markets and threaten the economy at large. Two of those programs, the Term Securities Lending Facility (TSLF) and the Primary Dealer Credit Facility (PDCF) were aimed at providing liquidity to primary dealers and required the Fed to rely on its authority under Section 13(3) of the Federal Reserve Act. Section 13(3) is a Depression Era amendment that permits the Fed expanded powers in “unusual and …

The Federal Reserve’S Financial Crisis Response A: Lending & Credit Programs For Depository Institutions, Rosalind Z. Wiggins, Andrew Metrick

Journal of Financial Crises

Beginning in summer 2007, the Federal Reserve (the Fed) was called upon to address a severe disruption in the interbank lending markets sparked by a downturn in the subprime mortgage market. As these developments began to impact the ability of banks to raise adequate funding, the Fed encouraged them to utilize the Discount Window (DW), its standing facility for lending to depository institutions, and repeatedly decreased the lending rate to make the facility more accessible. Despite the Fed’s efforts, for a number of reasons, including historical perceptions of stigma, banks were reluctant to utilize the DW. In December 2007, the …

How Socialism Failed Venezuela, Ben Abrahamson

Political Science Theses and Capstones

In the 1970s, Venezuela was considered one of the wealthiest nations in the world. They enjoyed high oil prices after the discovery of OPEC, they were a democratized country in a continent where most of it was still undeveloped. Unfortunately, in the 1980s a major cut in oil prices caused economic turmoil, and leading into the 90s there were bloody riots, political disparity, attempted coups and building poverty. In 1998 came Hugo Chavez, a newly elected president to rid their economic issues and end corruption. However, that all turned out to be the opposite of what he did. The country …

Milk And The Motherland? Colonial Legacies Of Taste And The Law In The Anglophone Caribbean, Merisa S. Thompson

Journal of Food Law & Policy

This paper tells a story of the relationship between colonialism and capitalism through the lens of “milk” and “the law” in the Caribbean. Despite high levels of lactose intolerance amongst its population, milk is a regular part of many Caribbean diets and features prominently in its foodscapes. This represents a distinctive colonial inheritance that is the result of centuries of ongoing colonial violence and displacement. Taking a feminist and intersectional approach, the paper draws on analysis of key pieces of colonial legislation at significant historical junctures and secondary literature to do three things. Firstly, it examines how law aided the …

Lessons Learned: James (Jim) Millstein, Alec Buchholtz, Rosalind Z. Wiggins

Journal of Financial Crises

Millstein, who was the Chief Restructuring Officer, U.S. Department of the Treasury, during the Global Financial Crisis and instrumental in the rescue of American International Group, gives us his take on how best to prepare for future crises

Restructuring And Forgiveness In Financial Crises C: The Swedish Banking Crisis Of 1990-94, Christian M. Mcnamara, Dr. Lars Thunell, Andrew Metrick

Journal of Financial Crises

In the Spring of 1992, the Swedish government faced a dilemma. The country was in the midst of an economic downturn stemming from the collapse of asset prices (especially in real estate) that had spiked as a result of a credit boom that followed the deregulation of the Swedish banking system in the mid-1980s. Initially the impact of the downturn on the country’s banks had seemed to be limited to a small number of specific firms that the government moved to assist on an ad hoc basis in 1991. However, evidence was mounting that the banking crisis was reaching a …

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.