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 …
United States: Federal Home Loan Bank Advances, 2007–2009,
2022
Yale School of Management
United States: Federal Home Loan Bank Advances, 2007–2009, Natalie Leonard
Journal of Financial Crises
In response to the Global Financial Crisis (2007–2009), financial institutions exposed to the subprime mortgage market faced a loss of confidence by investors and generalized stress in funding markets, restricting financial institutions access to lending. Stigma at the Federal Reserve (the Fed) discount window precluded these financial institutions from turning to the Fed for funding. However, the Federal Home Loan Banks (FHLBanks), a system of cooperatively owned, government-sponsored wholesale banks, served as a significant source of liquidity for their 8,000 member institutions, including commercial and community banks, insurance companies, and thrifts. Between June 2007 and September 2008, “advances”—over-collateralized loans—increased from …
United States: Aldrich-Vreeland Emergency Currency During The Crisis Of 1914,
2022
Yale School of Management
United States: Aldrich-Vreeland Emergency Currency During The Crisis Of 1914, Sean Fulmer
Journal of Financial Crises
As geopolitical tensions in Europe began to devolve into World War I, international investors began selling stocks and securities on the New York Stock Exchange (NYSE), converting the proceeds into gold. A massive outflow of gold from the United States would have likely sparked a banking panic. To avert this, the Treasury secretary pushed for the closure of the NYSE and authorized banks to issue emergency currency at the start of August 1914 under powers granted by the Aldrich-Vreeland Act of 1908. This move allowed national banks to issue additional bank notes against privately issued assets such as commercial paper, …
United Kingdom: Extended Collateral Term Repo Facility,
2022
Yale School of Management
United Kingdom: Extended Collateral Term Repo Facility, Sean Fulmer
Journal of Financial Crises
In a precautionary measure as the European debt crisis worsened in 2011, the Bank of England created a contingent liquidity insurance facility, the Extended Collateral Term Repo (ECTR) facility. This facility would swap sterling cash for eligible collateral on a short-term basis and could be implemented by the Bank’s governor, if liquidity pressures emerged. Under the initial framework, banks and building societies submitted their bids as a spread to the Bank Rate, subject to a minimum spread of 125 basis points, and paid the lowest accepted spread. In 2013, the Bank changed the name of the facility to the Contingent …
United Kingdom: Indexed Long-Term Repo Operations,
2022
Yale School of Management
United Kingdom: Indexed Long-Term Repo Operations, Sean Fulmer
Journal of Financial Crises
Before the Global Financial Crisis of 2007–09, the Bank of England regularly used monthly Long-Term Repo (LTR) operations at a range of maturities to manage its balance sheet. As market liquidity tightened in late 2007, the Bank introduced the Extended Collateral Long-Term Repo (ELTR) program to lend larger amounts of sterling cash against a wider set of collateral at three-month maturities. In June 2010, the Bank replaced the ELTRs with the Indexed Long-Term Repo (ILTR) program to make the wider set of collateral a permanent part of its toolkit. The ILTR operations auctioned liquidity at three- and six-month maturities against …
United Kingdom: Extended-Collateral Long-Term Repo,
2022
Yale School of Management
United Kingdom: Extended-Collateral Long-Term Repo, Sean Fulmer
Journal of Financial Crises
In response to liquidity crunches in funding markets leading up to the Global Financial Crisis, the Bank of England introduced Extended-Collateral Long-Term Repo (ELTR) operations, which were a modified version of the regularly scheduled three-month open market operations. These operations were conducted by auction and accepted non-sovereign debt securities, including residential mortgage-backed securities, as collateral. The Bank of England routinely changed the frequency and size of the ELTRs in response to financial needs. At the peak, ELTRs occurred weekly with 40 billion British pounds (GBP) available for eligible institutions, and with GBP 180 billion outstanding. In order to drain this …
United Kingdom: Discount Window Facility,
2022
Yale School of Management
United Kingdom: Discount Window Facility, Sean Fulmer
Journal of Financial Crises
As the strains of the Global Financial Crisis (GFC) spread internationally in 2008, the Bank of England took measures to provide support to the financial sector. The Bank of England decided to split its Standing Facilities, which faced stigma issues, into the Discount Window Facility (DWF) and Operational Standing Facilities (OSFs). While the OSFs served to set rates and absorb technical frictions in the money markets, the DWF offered banks the opportunity to borrow Treasury-issued gilts for a fee (at a penalty rate), against a range of less liquid collateral. Initially, institutions could borrow for up to 30 days, but …
United Kingdom: Bank Of England Lending During The Panic Of 1866,
2022
Yale School of Management
United Kingdom: Bank Of England Lending During The Panic Of 1866, Sean Fulmer
Journal of Financial Crises
In 1866, the largest discount house in London, Overend-Gurney, teetered on the verge of insolvency as a result of extensive loan losses. It appealed to the Bank of England, then a privately held joint-stock bank with a monopoly over note issuance, but the Bank refused to help Overend-Gurney on the grounds that it was insolvent. When Overend-Gurney suspended payments, a massive bank run spread throughout London, with observers remarking that an “earthquake” had torn through the City. Panicked bankers flooded to the Bank of England’s discount window, where the Bank fulfilled any “legitimate request for assistance.” Fulfillment came in two …
