Search Results
Journal Article
Case studies on disruptions during the crisis
The 2007-09 financial crisis saw many funding mechanisms challenged by a drastic reduction in market liquidity, a sharp increase in the cost of transactions, and, in some cases, a drying-up in financing. This article presents case studies of several key financial markets and intermediaries under significant distress at this time. For each case, the author discusses the size and evolution of the funding mechanism, the sources of the disruptions, and the policy responses aimed at mitigating distress and making markets more liquid. The review serves as a reference on the vulnerabilities of ...
Report
The Federal Reserve's Commercial Paper Funding Facility
The Federal Reserve created the Commercial Paper Funding Facility (CPFF) in the midst of severe disruptions in money markets following the bankruptcy of Lehman Brothers on September 15, 2008. The CPFF finances the purchase of highly rated unsecured and asset-backed commercial paper from eligible issuers via primary dealers. The facility is a liquidity backstop to U.S. issuers of commercial paper, and its creation was part of a range of policy actions undertaken by the Federal Reserve to provide liquidity to the financial system. This paper documents aspects of the financial crisis relevant to ...
Journal Article
Fed confronts financial crisis by expanding its role as lender of last resort
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 ...
Speech
Introductory remarks for the Panel on Regulating Financial Markets: lessons from crisis management
Introductory Remarks for the Panel Discussion Sponsored by the Heller-Hurwicz Economics Institute and the Economic Club of Minnesota at the University of Minnesota, Minneapolis.
Speech
Reducing the systemic risk in shadow maturity transformation
Remarks at the Global Association of Risk Professionals 12th Annual Risk Management Convention, New York City.
Journal Article
The Federal Reserve’s Commercial Paper Funding Facility
Established in the wake of Lehman Brothers? bankruptcy to stabilize severe disruptions in the commercial paper market, the Commercial Paper Funding Facility (CPFF) allowed the Federal Reserve to act as a lender of last resort for issuers of commercial paper, thereby effectively addressing temporary liquidity distortions and alleviating the severe funding stress that threatened to further exacerbate the financial crisis. In doing so, the CPFF can be considered a noteworthy model of liquidity provision in a market-based financial system, where maturity transformation occurs outside of the ...
Journal Article
Directly placed finance company paper
Report
Dodd-Frank one year on: implications for shadow banking
One year after passage of the Dodd-Frank Act (DFA), regulators proposed several of the rules required for its implementation. In this paper, I discuss some aspects of proposed DFA rules in light of shadow banking. The topics are risk-retention rules for securitized products and the impact of capital reforms on asset-backed commercial paper (ABCP) conduits. While the reform of securitization is resulting primarily from DFA, changes in accounting standards, together with the Basel capital reforms, have had important impacts on the economics of ABCP conduits.
Working Paper
Did the commercial paper funding facility prevent a Great Depression-style money market meltdown?
This paper analyzes how risk premia?and other factors affecting the comparative advantages of security-funded versus deposit-funded short-run debt?altered the relative use of debt funded by securities markets since the early-1960s and the relative use of commercial paper during the recent financial crisis. Results indicate that lower risk premia, higher information costs, and reserve requirement costs induce less relative use of commercial paper and short-run debt funded by securities markets. This paper also finds that Federal Reserve interventions in the money market helped prevent the ...
Working Paper
Effects of Changing Monetary and Regulatory Policy on Overnight Money Markets
Money markets have been operating under a new monetary policy implementation framework since the Federal Reserve started paying interest on bank reserves in late 2008. The regulatory environment has also evolved substantially over this period. We develop and test hypotheses regarding the effects of changes in the monetary and regulatory policy on dynamics of key overnight funding markets. We find that the federal funds rate continued to provide an anchor, albeit weaker, for unsecured funding rates amid substantial decline in activity and changing composition of trades, while its transmission ...