How effective were the Federal Reserve emergency liquidity facilities?: evidence from the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility
AbstractFollowing the failure of Lehman Brothers in September 2008, short-term credit markets were severely disrupted. In response, the Federal Reserve implemented new and unconventional facilities to help restore liquidity. Many existing analyses of these interventions are confounded by identification problems because they rely on aggregate data. Two unique micro datasets allow us to exploit both time series and cross-sectional variation to evaluate one of the most unusual of these facilities - the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF). The AMLF extended collateralized loans to depository institutions that purchased asset-backed commercial paper (ABCP) from money market funds, helping these funds meet the heavy redemptions that followed Lehman's bankruptcy. The program, which lent $150 billion in its first 10 days of operation, was wound down with no credit losses to the Federal Reserve. Our findings indicate that the facility was effective as measured against its dual objectives: it helped stabilize asset outflows from money market mutual funds, and it improved liquidity in the ABCP market. Using a differences-in-differences approach we show that after the facility was implemented, money market fund outflows decreased more for those funds that held more eligible collateral. Similarly, we show that yields on AMLF-eligible ABCP decreased significantly relative to those on otherwise comparable AMLF-ineligible commercial paper.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Federal Reserve Bank of Boston in its series Risk and Policy Analysis Unit Working Paper with number QAU10-3.
Date of creation: 2010
Date of revision:
Other versions of this item:
- Burcu Duygan-Bump & Patrick Parkinson & Eric Rosengren & Gustavo A. Suarez & Paul Willen, 2013. "How Effective Were the Federal Reserve Emergency Liquidity Facilities? Evidence from the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility," Journal of Finance, American Finance Association, vol. 68(2), pages 715-737, 04.
- NEP-ALL-2010-05-15 (All new papers)
- NEP-BAN-2010-05-15 (Banking)
- NEP-CBA-2010-05-15 (Central Banking)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Joe Peek & Eric S. Rosengren, 2013. "The role of banks in the transmission of monetary policy," Public Policy Discussion Paper 13-5, Federal Reserve Bank of Boston.
- Sean Campbell & Daniel Covitz & William Nelson & Karen Pence, 2011. "Securitization markets and central banking: an evaluation of the term asset-backed securities loan facility," Finance and Economics Discussion Series 2011-16, Board of Governors of the Federal Reserve System (U.S.).
- Huberto M. Ennis, 2012. "Some theoretical considerations regarding net asset values for money market funds," Economic Quarterly, Federal Reserve Bank of Richmond, issue 4Q, pages 231-254.
- Marcin Kacperczyk & Philipp Schnabl, 2011. "Implicit Guarantees and Risk Taking: Evidence from Money Market Funds," NBER Working Papers 17321, National Bureau of Economic Research, Inc.
- Tobias Adrian & Daniel Covitz & Nellie Liang, 2013.
"Financial stability monitoring,"
Finance and Economics Discussion Series
2013-21, Board of Governors of the Federal Reserve System (U.S.).
- Duca, John V., 2014. "What drives the shadow banking system in the short and long run?," Working Papers 1401, Federal Reserve Bank of Dallas.
- Scott Brave & Hesna Genay, 2011. "Federal Reserve policies and financial market conditions during the crisis," Working Paper Series WP-2011-04, Federal Reserve Bank of Chicago.
- Jonathan Witmer, 2012. "Does the Buck Stop Here? A Comparison of Withdrawals from Money Market Mutual Funds with Floating and Constant Share Prices," Working Papers 12-25, Bank of Canada.
- Levintal, Oren, 2013. "The real effects of banking shocks: Evidence from OECD countries," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 556-578.
- Patrick E. McCabe, 2010. "The cross section of money market fund risks and financial crises," Finance and Economics Discussion Series 2010-51, Board of Governors of the Federal Reserve System (U.S.).
- Martina Cecioni & Giuseppe Ferrero & Alessandro Secchi, 2011. "Unconventional Monetary Policy in Theory and in Practice," Questioni di Economia e Finanza (Occasional Papers) 102, Bank of Italy, Economic Research and International Relations Area.
- Patricia C. Mosser, 2011. "Overview," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 1-2.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Catherine Spozio).
If references are entirely missing, you can add them using this form.