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Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
Emergency Collateral Upgrades
During the 2008-09 financial crisis, the Federal Reserve established two emergency facilities for broker-dealers. One provided collateralized loans. The other lent securities against a pledge of other securities, effectively providing collateral upgrades, an operation similar to activities traditionally undertaken by broker-dealers. We find that these facilities alleviated dealers' funding pressures when access to repos backed by illiquid collateral deteriorated. We also find that dealers used the facilities, especially the ability to upgrade collateral, to continue funding their own illiquid inventories (avoiding potential fire-sales), and to extend funding to their clients. Exogenous variation in collateral policies at one facility allows a causal interpretation of these stabilizing effects.
Cite this item
Mark A. Carlson & Marco Macchiavelli, Emergency Collateral Upgrades, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2018-078, 15 Nov 2018.
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- G01 - Financial Economics - - General - - - Financial Crises
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
Keywords: Financial crisis ; Lender of last resort ; Collateral ; Dealers ; Repo
This item with handle RePEc:fip:fedgfe:2018-78
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