Japan: Special Funds-Supplying Operations,
2022
Yale School of Management
Japan: Special Funds-Supplying Operations, Sharon M. Nunn
Journal of Financial Crises
The Bank of Japan responded to the COVID-19 economic downturn in March 2020 with several financial stability interventions. The Special Funds-Supplying Operations to Facilitate Financing in Response to the Novel Coronavirus (COVID-19) (SFSO) offered interest-free loans of up to one year in maturity to eligible financial institutions in an attempt to encourage broader lending to Japanese businesses and households. Counterparties could pledge as collateral a broad range of corporate and private debt, including corporate bonds and asset-backed securities. Enhancements made throughout the program's operation led to substantial increases in SFSO use. First, the BoJ expanded institution and collateral eligibility, as …
Eurozone: Pandemic Emergency Purchase Program,
2022
Yale School of Management
Eurozone: Pandemic Emergency Purchase Program, Corey N. Runkel
Journal of Financial Crises
The COVID-19 pandemic quickly engulfed the European Union's economy in 2020. As investors sought safe assets, marketable debt yields rose dramatically. To lower the cost of borrowing, the European Central Bank (ECB), alongside the 19 national central banks (NCBs) that comprise the Eurosystem, purchased marketable debt in secondary markets. Asset eligibility mirrored that of the ECB's Asset Purchase Program (APP), an ongoing quantitative easing program which the ECB expanded during the pandemic. The main difference was that the PEPP allowed debt issued by Greece, which did not have an investment-grade credit rating. The rate that the PEPP purchased securities within …
Canada: Provincial Money Market Purchase Program,
2022
Yale School of Management
Canada: Provincial Money Market Purchase Program, Lily S. Engbith
Journal of Financial Crises
In response to the COVID-19 crisis in early 2020, the Bank of Canada (BoC) enacted wide-ranging measures to support the flow of credit to individuals, firms, and municipalities. On March 24, 2020, the BoC established the Provincial Money Market Purchase Program (PMMPP) to address liquidity strains in provincial funding markets. The BoC initially committed to purchasing up to 40% of each offering of directly issued provincial money market securities with terms of 12 months or less, including provincial treasury bills and short-term promissory notes. All Canadian provinces were eligible for participation in the program. The program's utilization peaked at 7.6 …
Canada: Provincial Bond Purchase Program,
2022
Yale School of Management
Canada: Provincial Bond Purchase Program, Natalie Leonard
Journal of Financial Crises
In the beginning of 2020, the outbreak of the novel coronavirus placed significant strain on financial markets and especially affected commodity-producing countries like Canada. As the broad economy contracted, oil-exports fell, and the government imposed public health restrictions to contain coronavirus, the Bank of Canada (BoC) announced emergency measures to ensure functioning of financial markets and to "reach companies and households and foster a robust recovery" (Poloz 2020, 1). One market that faced acute strain was the Canadian provincial bond market. The BoC announced the Provincial Bond Purchase Program (PBPP) through a notice published on April 15, 2020. The stated …
Canada: Government Bond Purchase Program,
2022
Yale School of Management
Canada: Government Bond Purchase Program, Corey N. Runkel
Journal of Financial Crises
In Canada, the shock of the COVID-19 crisis drove up bid-ask spreads on Government of Canada (GoC) bonds. The Bank of Canada (BoC) announced the Government Bond Purchase Program (GBPP) to support the functioning of its government bond market, support other market liquidity tools, and replace the BoC's long-standing fiscal agent activities. The GBPP conducted multi-rate reverse auctions with primary dealers to purchase GoC bonds in the secondary market. The GBPP purchased bonds across the yield curve but concentrated on two- and five-year tenors. In June 2020, with CAD 64.7 billion (USD 48 billion) outstanding, the BoC announced that the …
Canada: Mortgage Bond Purchase Program,
2022
Yale School of Management
Canada: Mortgage Bond Purchase Program, Ezekiel Vergara
Journal of Financial Crises
Given the negative financial and economic shocks of the COVID-19 pandemic, the Bank of Canada (BoC) adopted several policies, including a suite of monetary policies, to maintain a healthy level of market liquidity. Among these measures, the BoC established the Canada Mortgage Bond Purchase Program (CMBP) on March 16, 2020. Through the CMBP, the BoC purchased Canada Mortgage Bonds (CMBs) from primary dealers on the secondary market, holding the CMBs on its balance sheet. The bank created the CMBP, which operated twice weekly and targeted purchases of up to CAD 500 million (USD 373 million) per week, to "support the …
Canada: Corporate Bond Purchase Program,
2022
Yale School of Management
Canada: Corporate Bond Purchase Program, Sharon M. Nunn
Journal of Financial Crises
The Bank of Canada (BoC) activated its Corporate Bond Purchase Program (CBPP) from May 26, 2020, to May 26, 2021, in response to liquidity strains in corporate bond markets that stemmed from economic uncertainty and the COVID-19 pandemic. Policymakers enacted the CBPP as part of a broader suite of policies meant to stabilize the Canadian economy. Through the CBPP, the BoC purchased Canadian corporate bonds through a tender process on the secondary market. The CBPP could hold up to CAD 10 billion (USD 7.7 billion) par value of eligible bonds issued by specific non-deposit-taking firms incorporated in Canada. The bonds …
Canada: Bankers’ Acceptance Purchase Facility,
2022
Yale School of Management
Canada: Bankers’ Acceptance Purchase Facility, Corey N. Runkel
Journal of Financial Crises
Bankers’ acceptances (BAs) are a form of investment security guaranteed by banks to fund loans to businesses against their credit lines. In Canada, BAs underpin the Canadian Dollar Offered Rate (CDOR), the main benchmark used to calculate floating interest rates in Canada’s derivatives market. In 2018, BAs formed the largest segment of money market securities traded in the secondary market at around CAD 35 billion (USD 26 billion) per week. When asset managers and the country’s public pension providers began shedding BAs amid the COVID-19 pandemic in early 2020, CDOR spiked, and the effects threatened to ripple throughout the Canadian …
Canada: Commercial Paper Purchase Program,
2022
Yale School of Management
Canada: Commercial Paper Purchase Program, Lily S. Engbith
Journal of Financial Crises
In response to the onset of the COVID-19 crisis in early 2020, the Bank of Canada (BoC) enacted a wide-ranging program of monetary measures intended to support the flow of credit to individuals, firms, and municipalities. On March 27, 2020, the BoC announced the establishment of the Commercial Paper Purchase Program (CPPP), a liquidity facility designed to purchase highly rated commercial paper (CP), including asset-backed CP, from Canadian incorporated firms, municipalities, and provincial agencies. The BoC funded the program using settlement balances, and it retained several private firms to manage the asset purchases and liaise with issuers. Although firms took …
United States: Y2k Special Liquidity Facility,
2022
Yale School of Management
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,
2022
Yale School of Management
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: Term Auction Facility,
2022
Yale School of Management
United States: Term Auction Facility, Corey N. Runkel, Anshu Chen
Journal of Financial Crises
Following the announcement on August 9, 2007, by BNP Paribas that it was suspending redemptions for three of its open-end investment funds that had invested heavily in mortgage-backed securities, liquidity in the American interbank and short-term funding markets tightened considerably. On August 17, the Federal Reserve lowered the cost of borrowing from the discount window. However, usage remained low, due largely to the perception that such borrowing implied weak financials. In December, the Fed launched the Term Auction Facility (TAF), which used single-rate auctions to mitigate this stigma. The TAF offered discount-window credit of 28 days, and later, 84 days. …
United States: New York Clearing House Association,The Panic Of 1907,
2022
Yale School of Management
United States: New York Clearing House Association,The Panic Of 1907, Corey N. Runkel
Journal of Financial Crises
Signs of financial panic had marked the months leading up to mid-October 1907 when depositors began to run on banks and trust companies across New York City, most notably the Knickerbocker Trust Company, then New York City’s third largest, on October 22. Cash injections from the US Treasury and from leading banker J.P. Morgan failed to reassure depositors and investors. On October 26, the New York Clearinghouse (NYCH), whose membership included most banks in New York, voted to issue clearinghouse loan certificates (CLCs) to help stabilize the financial panic. CLCs were collateralized by securities and could be used among members …
United States: Reconstruction Finance Corporation Emergency Lending To Financial Institutions, 1932–1933,
2022
Yale School of Management
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: New York Clearing House Association, The Panic Of 1884,
2022
Yale School of Management
United States: New York Clearing House Association, The Panic Of 1884, Benjamin Hoffner
Journal of Financial Crises
The New York Clearing House Association (NYCH), whose membership included most banks in New York, acted as a lender of last resort during the National Banking Era (1863–1913). In the Panic of 1884, following idiosyncratic deposit runs that forced three NYCH member banks to close, the NYCH membership unanimously agreed to issue clearinghouse loan certificates (CLCs) that banks could use as a temporary substitute for currency in the payment of interbank clearinghouse balances. The NYCH required the borrowing bank to post sufficient collateral to secure the loan, subject to a minimum 25% haircut (excluding US government bonds secured at par) …
United States: New York Clearing House Association, The Panic Of 1890,
2022
Yale School of Management
United States: New York Clearing House Association, The Panic Of 1890, Benjamin Hoffner
Journal of Financial Crises
Before the advent of the Federal Reserve System, private clearinghouses provided emergency liquidity support to the banking system during panics. The most notable of these institutions, the New York Clearing House Association (NYCH), supported its member banks by issuing clearinghouse loan certificates (CLCs), short-term collateralized loans guaranteed by the NYCH, as an alternative liquidity source during banking panics; member banks used CLCs exclusively for the purpose of temporarily settling payments with other NYCH members. During the Panic of 1890, the NYCH issued $16.65 million of CLCs between November 12 and December 22, 1890. The Loan Committee received requests from and …
United States: New York Clearing House Association, The Panic Of 1873,
2022
Yale School of Management
United States: New York Clearing House Association, The Panic Of 1873, Sean Fulmer
Journal of Financial Crises
In the absence of a central bank, the New York Clearing House Association (NYCH), a group of 60 New York City banks, stepped in as a private lender of last resort in response to banking runs during the Panic of 1873. The NYCH issued clearinghouse loan certificates (CLCs) to member banks that could use them as temporary payment substitutes to settle their clearing balances with other member banks. Borrowing banks paid a flat 7% interest rate. If a borrowing bank failed to repay its CLCs, the membership of the NYCH internally split the cost based on each member bank’s share …
United States: New York Clearing House Association: The Crisis Of 1914,
2022
Yale School of Management
United States: New York Clearing House Association: The Crisis Of 1914, Sean Fulmer
Journal of Financial Crises
As World War I began in 1914 and European stock markets shuttered, foreign investors turned to removing gold from the United States, sparking fears of bank runs and suspension of convertibility. At the start of August 1914, the New York Clearing House Association (NYCH) again authorized the issuance of clearinghouse loan certificates (CLCs), which could be used by member banks as temporary interest-paying substitutes for money in the settlement of clearing balances. The membership of the NYCH jointly guaranteed CLCs and committed to accepting CLCs as payment during the Crisis of 1914. Unique to the Crisis of 1914, the US …
United States: New York Clearing House Association, The Crisis Of 1893,
2022
Yale School of Management
United States: New York Clearing House Association, The Crisis Of 1893, Natalie Leonard
Journal of Financial Crises
The Panic of 1893 was one of the deepest economic depressions before the Great Depression of 1931. As a precautionary measure to stem the fall in reserves caused by country bank withdrawals, the New York Clearing House (NYCH), a private clearinghouse that operated as a de facto lender of last resort for its members, issued clearinghouse loan certificates (CLCs), as had been done in the prior crises of 1873, 1884, and 1890. CLCs functioned as a means of settlement between NYCH member banks and freed up coin and currency at a time of high demand. Member banks were required to …
United States: Federal Home Loan Bank Advances, 1932–1941,
2022
Yale School of Management
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 …
