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Federal Reserve Liquidity Provision during the Financial Crisis of 2007–2009

Author

Listed:
  • Michael J. Fleming

    () (Federal Reserve Bank of New York, New York 10045)

Abstract

This review examines the Federal Reserve's (or Fed'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 review 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," Annual Review of Financial Economics, Annual Reviews, vol. 4(1), pages 161-177, October.
  • Handle: RePEc:anr:refeco:v:4:y:2012:p:161-177
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    File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-financial-110311-101735
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    Cited by:

    1. Acharya, Viral V. & Fleming, Michael J. & Hrung, Warren B. & Sarkar, Asani, 2017. "Dealer financial conditions and lender-of-last-resort facilities," Journal of Financial Economics, Elsevier, vol. 123(1), pages 81-107.
    2. Jacobson, Margaret M. & Tallman, Ellis W., 2015. "Liquidity provision during the crisis of 1914: Private and public sources," Journal of Financial Stability, Elsevier, vol. 17(C), pages 22-34.
    3. Carlos León & Clara Machado & Miguel Sarmiento, 2014. "Identifying central bank liquidity super-spreaders in interbank funds networks," BORRADORES DE ECONOMIA 011187, BANCO DE LA REPÚBLICA.
    4. Haltom, Renee Courtois & Lacker, Jeffrey M., 2015. "Should the Fed Have a Financial Stability Mandate? Lessons from the Fed's First 100 Years," Economic Quarterly, Federal Reserve Bank of Richmond, issue 1Q, pages 49-75.
    5. 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.
    6. Andrés Fernández Díaz, 2015. "Some differences between the Great Depression and the Recient Crisis: learning a lesson
      [Diferencias entre la Gran Depresión y la crisis actual: Aprendiendo una lección]
      ," Documentos de trabajo de la Facultad de Ciencias Económicas y Empresariales 15-06, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales.
    7. Claudio Borio & Anna Zabai, 2016. "Unconventional monetary policies: a re-appraisal," BIS Working Papers 570, Bank for International Settlements.
    8. William Goulding & Daniel E. Nolle, 2012. "Foreign banks in the U.S.: a primer," International Finance Discussion Papers 1064, Board of Governors of the Federal Reserve System (U.S.).
    9. zhang, zhichao & Xie, Li & lu, xiangyun & zhang, zhuang, 2014. "Determinants of financial distress in u.s. large bank holding companies," MPRA Paper 53545, University Library of Munich, Germany.
    10. Arvind Krishnamurthy & Jennie Bai & Charles-Henri Weymuller, 2016. "Measuring Liquidity Mismatch in the Banking Sector," NBER Working Papers 22729, National Bureau of Economic Research, Inc.
    11. Acharya, Viral V & Tuckman, Bruce, 2013. "Unintended Consequences of LOLR Facilities: The Case of Illiquid Leverage," CEPR Discussion Papers 9784, C.E.P.R. Discussion Papers.
    12. Yorulmazer, Tanju, 2014. "Case studies on disruptions during the crisis," Economic Policy Review, Federal Reserve Bank of New York, issue Feb, pages 17-28.

    More about this item

    Keywords

    central bank; liquidity facilities; lender of last resort;

    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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