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Federal Reserve liquidity provision during the financial crisis of 2007-2009

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Abstract

This paper examines the Federal Reserve's unprecedented liquidity provision during the financial crisis of 2007-2009. It first reviews how the Fed provides liquidity in normal times. It then explains how the Fed's new and expanded liquidity facilities were intended to enable the central bank to fulfill its traditional lender-of-last-resort role during the crisis while mitigating stigma, broadening the set of institutions with access to liquidity, and increasing the flexibility with which institutions could tap such liquidity. The paper then assesses the growing empirical literature on the effectiveness of the facilities and provides insights as to where further research is warranted.

Suggested Citation

  • Michael J. Fleming, 2012. "Federal Reserve liquidity provision during the financial crisis of 2007-2009," Staff Reports 563, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:563
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    Keywords

    Financial crises; Bank liquidity; Troubled Asset Relief Program; Liquidity (Economics); lenders of last resort;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises

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