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Options of Last Resort

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Abstract

During the global financial crisis of 2007-08, collateral markets became illiquid, making it difficult for dealers to obtain short-term funding to finance their positions. As lender of last resort, the Federal Reserve responded with various programs to promote liquidity in these markets, including the Primary Dealer Credit Facility and the Term Securities Lending Facility (TSLF). In this post, we describe an additional and rarely discussed liquidity facility introduced by the Fed during the crisis: the TSLF Options Program (TOP). The TOP was unique among crisis-period liquidity facilities in its provision of options. A follow-up post will analyze dealer participation in the TOP.

Suggested Citation

  • Erin Denison & Michael J. Fleming & Warren B. Hrung & Asani Sarkar, 2018. "Options of Last Resort," Liberty Street Economics 20180226, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednls:87244
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    File URL: https://libertystreeteconomics.newyorkfed.org/2018/02/options-of-last-resort.html
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    Keywords

    Dealers; Liquidity Facilities; Crisis; Lender of Last Resort;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services

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