Measures taken by the Federal Reserve System and the European Central Bank during the crisis

The instruments applied by the ECB and the Fed1 during the crisis were based on similar principles, but as the ECB and the Fed function in different financial intermediary systems, they relied on different tools to respond to different types of challenges. Both institutions increased liquidity substantially and deployed instruments with the aim of alleviating tensions in certain market segments. The ECB faced a somewhat more complex problem, due to the combination of banking system difficulties and uncertainties surrounding fiscal sustainability. The central bank(s) of the euro area attempted to ensure the funding of banks by providing longer-term loans unrestrictedly; securities purchases had smaller limit amounts and were, for the most part, intended to mitigate disturbances in certain market segments and lower excessive yields. The Fed tried to address the root problem of the crisis, the mortgage market. With its asset purchases, it attempted to lower longterm yields and mitigate the disturbances in the market of mortgage-backed securities; in addition, it introduced several targeted loan instruments. According to empirical analyses, the unconventional instruments the two central banks deployed successfully mitigated market tensions, expanded market liquidity and lowered yields. Typically, the studies concluded that the programmes improved the situation of the real economy and that the recession would have been deeper and unemployment higher without them.