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Dealer financial conditions and lender-of-last resort facilities

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Author Info

  • Acharya, Viral V.

    (Federal Reserve Bank of New York)

  • Fleming, Michael J.

    ()
    (Federal Reserve Bank of New York)

  • Hrung, Warren B.

    (Federal Reserve Bank of New York)

  • Sarkar, Asani

    (Federal Reserve Bank of New York)

Abstract

We examine the financial conditions of dealers that participated in two of the Federal Reserve’s lender-of-last-resort (LOLR) facilities--the Term Securities Lending Facility (TSLF) and the Primary Dealer Credit Facility (PDCF)--that provided liquidity against a range of assets during 2008-09. Dealers with lower equity returns and greater leverage prior to borrowing from the facilities were more likely to participate in the programs, borrow more, and--in the case of the TSLF--at higher bidding rates. Dealers with less liquid collateral on their balance sheets before the facilities were introduced also tended to borrow more. There also appear to be some interaction effects between financial performance and balance sheet liquidity in explaining dealer behavior. The results suggest that both financial performance and balance sheet liquidity play a role in LOLR utilization.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 673.

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Length: 57 pages
Date of creation: 01 May 2014
Date of revision:
Handle: RePEc:fip:fednsr:673

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Related research

Keywords: lender of last resort; central banking; crises; illiquidity; insolvency; stigma;

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  1. Mark J. Flannery, 1996. "Financial crises, payment system problems, and discount window lending," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 804-831.
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Cited by:
  1. Olivier Armantier & John Sporn, 2013. "Auctions implemented by the Federal Reserve Bank of New York during the Great Recession," Staff Reports 635, Federal Reserve Bank of New York.
  2. Viral V. Acharya & Bruce Tuckman, 2013. "Unintended Consequences of LOLR Facilities: The Case of Illiquid Leverage," NBER Working Papers 19773, National Bureau of Economic Research, Inc.

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