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Fed confronts financial crisis by expanding its role as lender of last resort

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Author Info

  • John V. Duca
  • Danielle DiMartino
  • Jessica J. Renier

Abstract

The current recession has deepened because of shrinking credit flows from banks, nonbank lenders and securities markets. This contrasts with the early 1990s, when new bonds and commercial paper cushioned a bank credit crunch, and with the high-tech investment bust of the early 2000s, when steady bank lending lessened the impact of receding bond and equity finance markets. ; This time, breakdowns in key credit markets posed great risks to the financial system and the broader economy. The Federal Reserve responded with unprecedented measures, expanding its role as lender of last resort in an effort to unclog credit markets and free up the financial flows vital to a well-functioning economy.

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File URL: http://dallasfed.org/assets/documents/research/eclett/2009/el0902.pdf
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Bibliographic Info

Article provided by Federal Reserve Bank of Dallas in its journal Economic Letter.

Volume (Year): 4 (2009)
Issue (Month): feb ()
Pages:

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Handle: RePEc:fip:feddel:y:2009:i:feb:n:v.4no.2

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Related research

Keywords: Financial crises ; Economic conditions - United States ; Interbank market ; Commercial paper ; Mortgage-backed securities ; Discount window ; Asset-backed financing;

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Cited by:
  1. Duca, John V., 2010. "Did the Commercial Paper Funding Facility Prevent a Great Depression Style Money Market Meltdown?," MPRA Paper 29255, University Library of Munich, Germany, revised 22 Feb 2011.
  2. John V. Duca & John Muellbauer & Anthony Murphy, 2010. "Housing Markets and the Financial Crisis of 2007-2009: Lessons for the Future," SERC Discussion Papers 0049, Spatial Economics Research Centre, LSE.

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