United Kingdom: Bank Of England Lending During The Panic Of 1825,
2022
Yale School of Management
United Kingdom: Bank Of England Lending During The Panic Of 1825, Sean Fulmer
Journal of Financial Crises
Although historians continue to debate what exactly sparked the Panic of 1825, it is clear that by December of that year, a widespread bank run had erupted, and bankers flocked to the discount window of the Bank of England. While not yet the central bank, the Bank had special legal authority over note issuance and banking, which led to its operation as a semipublic bank. The Bank refused to accept any explicit commitment to act as a lender of last resort, despite being perceived as such by the market. The Bank initially restricted lending to protect its reserves. This policy …
Thailand: Financial Institutions Development Fund Liquidity Support,
2022
Yale School of Management
Thailand: Financial Institutions Development Fund Liquidity Support, Corey N. Runkel
Journal of Financial Crises
International investors launched three speculative attacks on the Thai baht in 1996 and 1997 following one high-profile banking failure, constant departures from the Bank of Thailand (BOT), and slumping returns on stocks and real estate. Though the BOT succeeded in the baht’s defense, the BOT’s depleted reserves were unable to fend off domestic troubles that emerged in early 1997. The speculative attacks increased the cost of foreign-denominated debt—which accounted for 18% of all bank lending—and forced up interbank lending yields. The decade-long boom in foreign capital inflows had generally overvalued assets, and banks found themselves in need of outside financing …
Russia: Lombard And Overnight Loans, 1998,
2022
Yale School of Management
Russia: Lombard And Overnight Loans, 1998, Benjamin Hoffner
Journal of Financial Crises
On August 17, 1998, following a wave of speculative attacks on domestic ruble assets, the Russian government announced a default on its ruble debt maturing before the end of 1999, and the Central Bank of Russia (CBR) declared a devaluation of the ruble by widening the fixed exchange rate band. The announcements left Russian banks without their main source of collateral—government treasuries—to obtain funds from the CBR’s liquidity facilities. Russia’s payment system and interbank market froze as banks hoarded liquidity and, in some cases, restricted withdrawals in response to depositor runs. To restore liquidity to commercial banks and unfreeze the …
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 …
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 …
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: 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, …
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 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 …
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 …
