Norway: Covered Bond Swap Program,
2022
Yale School of Management
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 …
Russia: Central Bank Bonds, 1998,
2022
Yale School of Management
Russia: Central Bank Bonds, 1998, Benjamin Hoffner
Journal of Financial Crises
Russian financial markets came to a halt on August 17, 1998, after the Russian government and Central Bank of Russia (CBR) issued a joint statement announcing a ruble devaluation and the suspension of payment on ruble-denominated government treasury bonds maturing before 2000—commonly referred to as “GKO-OFZ” bonds. In September, without a functioning treasury market and with many domestic banks unable to make payments, the CBR began issuing its own short-term, zero-coupon bonds (OBRs) as an alternative financing instrument to provide liquidity in the Russian banking system. OBRs held maximum maturities of three months and the CBR set an upper limit …
Hong Kong: Temporary Liquidity Measures, 2008,
2022
Yale School of Management
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 …
Hungary: Liquidity Scheme,
2022
Yale School of Management
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: Private Emergency Loans, 1965,
2022
Yale School of Management
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 …
European Central Bank: Term Refinancing Operations,
2022
Yale School of Management
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,
2022
Yale School of Management
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,
2022
Yale School of Management
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 …
Canada: Private-Sector Term Purchase And Resale Agreements,
2022
Yale School of Management
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,
2022
Yale School of Management
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: Contingent Term Repo Facility,
2022
Yale School of Management
Canada: Contingent Term Repo Facility, Sharon M. Nunn
Journal of Financial Crises
The Bank of Canada (BoC) activated its Contingent Term Repo Facility (CTRF) from April 2020 to April 2021 in response to liquidity strains in markets that stemmed from economic uncertainty and the COVID-19 pandemic. The facility complemented other BoC liquidity facilities by broadening access to the central bank’s repurchase (repo) operations beyond primary dealers and their affiliates, to large asset managers active in Canadian dollar money markets or fixed income markets. The CTRF offered one-month term funding to eligible counterparties on a bilateral basis against securities issued or guaranteed by the government of Canada or a provincial government. In the …
Canada: Term Purchase And Resale Agreement Facility,
2022
Yale School of Management
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 …
New York Clearing House Association: Overview,
2022
Yale School of Management
New York Clearing House Association: Overview, Sean Fulmer
Journal of Financial Crises
Between the creation of nationally chartered banks in 1863 and the launch of the Federal Reserve System in 1914, an organization of most New York City banks—originally formed to simplify settling clearing balances—joined together during banking panics to reallocate liquidity and restore market confidence. In the absence of a central bank, this organization, the New York Clearing House Association (NYCH), issued clearinghouse loan certificates (CLCs) that association members could use as temporary cash substitutes for settling clearing balances between banks. CLCs allowed borrowing banks to maintain their cash reserves without costly asset liquidations. The NYCH used CLCs in six crises …
United States: Temporary Guarantee Program For Money Market Funds,
2022
Yale School of Management
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 States: Transaction Account Guarantee Program,
2022
Yale School of Management
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, …
Taiwan (Roc): Central Deposit Insurance Corporation,
2022
Yale School of Management
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,
2022
Yale School of Management
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 …
Spain: Deposit Guarantee Funds,
2022
Yale School of Management
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,
2022
Yale School of Management
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,
2022
Yale School of Management
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 …
