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


  • John V. Duca
  • Danielle DiMartino
  • Jessica Renier


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.

Suggested Citation

  • John V. Duca & Danielle DiMartino & Jessica Renier, 2009. "Fed confronts financial crisis by expanding its role as lender of last resort," Economic Letter, Federal Reserve Bank of Dallas, vol. 4(feb).
  • Handle: RePEc:fip:feddel:y:2009:i:feb:n:v.4no.2

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    Cited by:

    1. Duca, John V. & Muellbauer, John & Murphy, Anthony, 2010. "Housing markets and the financial crisis of 2007-2009: Lessons for the future," Journal of Financial Stability, Elsevier, vol. 6(4), pages 203-217, December.
    2. Duca, John V., 2013. "Did the commercial paper funding facility prevent a Great Depression style money market meltdown?," Journal of Financial Stability, Elsevier, vol. 9(4), pages 747-758.


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