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Lessons Learned: Paul Tucker, Salil Gupta

Journal of Financial Crises

After joining the Bank of England (BoE) in 1980, Sir Paul Tucker held a number of positions of increasing responsibility including serving as a member of several key committees. Tucker played a crucial role in the BoE’s response to the Global Financial Crisis (GFC) as director for markets, through March 2009, then as deputy governor of the bank until November 2013. Post-crisis, he has been instrumental in constructing the international regulatory framework on financial stability. From 2016 to 2021, Tucker also chaired the Systemic Risk Council.

Currently, Tucker is a research fellow at Harvard Kennedy School, Mossavar-Rahmani Center for Business …

Lessons Learned: Pedro Machado, Mercedes Cardona

Journal of Financial Crises

Pedro Machado began his career as a legal adviser to the European Central Bank in the years leading up the Global Financial Crisis (GFC), then joined the Bank of Portugal (BOP) in 2006, where he has held several positions. He was chief of staff to Portugal’s minister of state and finance in 2011, during the European Sovereign Debt Crisis, when the government negotiated a bailout with the International Monetary Fund (IMF) and European Union. He returned to the BOP, as deputy director of the prudential supervision department, while the program was being implemented. The EUR 78 billion bailout was largely …

United States: Citigroup Capital Injection, 2008, Benjamin Hoffner, Vincient Arnold

Journal of Financial Crises

During the first three weeks of November 2008, Citigroup’s stock price dropped almost 80%, and its credit default swap spreads spiked as the market lost confidence in the bank’s ability to honor its commitments. Counterparties pulled away, and regulators determined Citi’s failure would constitute a systemic risk. On November 23, 2008, the Treasury, Federal Reserve Board, and Federal Deposit Insurance Corporation announced a package of measures to rescue Citi, which included an Asset Guarantee Program (AGP) to cover $306 billion in Citi’s assets and an ad hoc capital injection—the Targeted Investment Program (TIP). Under the guarantee, Citi would absorb the …

United States: Bank Of America Capital Injection, 2009, Benjamin Hoffner, Vincient Arnold

Journal of Financial Crises

On September 15, 2008, Bank of America (BofA) announced a merger with the investment bank Merrill Lynch. In December, BofA learned that Merrill Lynch had experienced large, unexpected losses amounting to $15.5 billion during the fourth quarter of 2008. In light of these losses, BofA’s CEO informed the US Treasury secretary and Federal Reserve chairman that BofA intended to invoke the material adverse change clause of the merger agreement, allowing for a renegotiation of, or escape from, the merger. Officials at the Fed and Treasury warned BofA that a failure of the merger would have adverse consequences for BofA and …

Switzerland: Ubs Capital Injection, 2008, Anmol Makhija

Journal of Financial Crises

UBS, the eighth-largest bank in the world and the largest bank in Switzerland in 2008, incurred write-downs totaling USD 50 billion during the Global Financial Crisis, mostly on exposures to securities linked to US subprime mortgages. On October 16, 2008, the Swiss Federal Council announced that the government would subscribe to CHF 6 billion (USD 5.3 billion) of mandatory convertible notes (MCNs) issued by UBS to restore confidence in the bank and the financial system. UBS agreed to use the government’s capital to fund the equity for a special purpose vehicle, StabFund, that the central bank created to take over …

India: Yes Bank Capital Injection, 2020, Salil Gupta

Journal of Financial Crises

In March 2020, the Reserve Bank of India (RBI) helped engineer a capital injection and restructuring of Yes Bank, India’s fourth-largest private sector bank, to prevent a run on the bank and to preserve broader financial stability. On March 14, 2020, Yes Bank received a total capital injection of 100 billion Indian rupees (INR; USD 1.34 billion) in total from the State Bank of India and a group of private sector banks (HDFC, ICICI Bank, Axis Bank, Kotak Mahindra Bank, Federal Bank, Bandhan Bank, IDFC First Bank). The government-owned SBI received a 48.2% equity stake, committing to contribute up to …

Belgium: Fortis Group Capital Injection, 2008, Ayodeji George

Journal of Financial Crises

In September 2008, in the wake of the freezing of credit markets caused by the Global Financial Crisis (GFC), Fortis Group, a financial conglomerate incorporated in Belgium and the Netherlands, faced depositor runs and share price deterioration. These negative consequences were a result of its exposures to US subprime mortgage-related assets and other losses from its 2007 acquisition of ABN AMRO, a large Dutch bank. Over the weekend of September 27–29, authorities from Belgium, the Netherlands, Luxembourg, and the European Central Bank (ECB) held emergency talks, resulting in the announcement of EUR 11.2 billion (USD 14.3 billion) in capital injections …

Lessons Learned: Daniela Klingebiel, Yasemin Sim Esmen

Journal of Financial Crises

Daniela Klingebiel was principal portfolio manager with the World Bank’s Pension and Endowment Department, Hedge Funds, during the Global Financial Crisis. Throughout her career, she has written many papers on financial crises, comparing various governments’ attempts to manage them and dissecting what has worked and why. This Lessons Learned summary is based on an interview with Klingebiel held on February 4 and March 3, 2021.

Lessons Learned: Bo Lundgren, Maryann Haggerty

Journal of Financial Crises

Bo Lundgren was Sweden’s cabinet minister for fiscal and financial affairs from 1991 to 1994, making him a key leader in managing the nation’s severe financial crisis during those years. Lundgren had a decades-long political career as a member of the Swedish Parliament from 1975 to 2004, was leader of the Moderate Party (1999–2003), and vice president of the European People’s Party in the European Union. He also served from 2004 to 2013 as director general of the Swedish National Debt Office, the country’s central financial agency. Drawing on his experiences in the Swedish crisis, Lundgren has shared his views …

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

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

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 …

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 …

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: 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

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

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 …

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 …

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 …

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% …

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 …

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 …

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 …

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 …

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

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

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

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

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

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 …