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Journal Article
How Did the Fed Funds Market Change When Excess Reserves Were Abundant?
Nosal, Ed; McGowan, John (2020-03-01)
Prior to the 2007-2008 financial crisis, excess reserves in the U.S. banking system were scarce. After the financial crisis and up until early 2018, excess reserves were abundant. In this article, the authors document, analyze, and explain the differences in the performance of the federal funds market under the two different excess reserves frameworks.
Economic Policy Review , Volume 26 , Issue 1 , Pages 15

Discussion Paper
Did the Fed’s Term Auction Facility Work?
Sarkar, Asani; McAndrews, James J.; Wang, Zhenyu (2011-10-11)
The Federal Reserve introduced the Term Auction Facility (TAF) in December 2007 to provide term loans to banks during the recent financial crisis. In this post, we report on the effectiveness of the TAF during the early stages of the crisis. We find that the TAF was associated with a decrease in the “liquidity premium,” one component of a bank’s borrowing cost. In other words, the TAF worked as intended.
Liberty Street Economics , Paper 20111011

Discussion Paper
Federal Reserve Liquidity Facilities Gross $22 Billion for U.S. Taxpayers
Abrahams, Michael (2012-11-07)
During the 2007-09 crisis, the Federal Reserve took many measures to mitigate disruptions in financial markets, including the introduction or expansion of liquidity facilities. Many studies have found that the Fed?s lending via the facilities helped stabilize financial markets. In addition, because the Fed?s loans were well collateralized and generally priced at a premium to the cost of funds, they had another, less widely noted benefit: they made money for U.S. taxpayers. In this post, I bring information together from various sources and time periods to show that the facilities generated ...
Liberty Street Economics , Paper 20121107

Discussion Paper
Measuring Settlement Fails
Keane, Frank M.; Martin, Antoine; McMorrow, Michael; Fleming, Michael J. (2014-09-19)
In June 2014, settlement fails of U.S. Treasury securities reached their highest level since the implementation of the Treasury fails charge in May 2009, attracting significant attention from market participants. In this post, we review what fails are, why they are of interest, and how they can be measured. In a companion post following this one, we evaluate the particular circumstances of the June 2014 fails.
Liberty Street Economics , Paper 20140919b

Discussion Paper
Crisis Chronicles: Railway Mania, the Hungry Forties, and the Commercial Crisis of 1847
Narron, James; Morgan, Donald P. (2015-06-05)
Money was plentiful in the United Kingdom in 1842, and with low yields on government bonds and railway shares paying handsome dividends, the desire to speculate spread?as one observer put it, ?the contagion passed to all, and from the clerk to the capitalist the fever reigned uncontrollable and uncontrolled? (Francis?s History of the Bank of England). And so began railway mania. Just as that bubble began to burst, a massive harvest failure in England and Ireland led to surging food imports, which drained gold reserves from the Bank of England. Constrained by the Bank Charter Act, the Bank ...
Liberty Street Economics , Paper 20150605

Discussion Paper
A Closer Look at the Federal Reserve’s Securities Lending Program
Schurmeier, Jake; Weiss, Emma; Keane, Frank M.; Fleming, Michael J. (2016-08-17)
The Federal Reserve lends specific Treasury and agency debt securities held in its System Open Market Account (SOMA)?and accepts general Treasury securities as collateral?through its daily securities lending program. The program supports Treasury and agency debt market function by providing a secondary and temporary source of securities to the broader market through the Fed?s trading counterparties, the primary dealers. Importantly, the size and composition of the SOMA portfolio reflect past monetary policy decisions, limiting the program's ability to help alleviate all collateral shortages. ...
Liberty Street Economics , Paper 20160817

Discussion Paper
The Final Crisis Chronicle: The Panic of 1907 and the Birth of the Fed
Narron, James; Morgan, Donald P. (2016-11-18)
The panic of 1907 was among the most severe we?ve covered in our series and also the most transformative, as it led to the creation of the Federal Reserve System. Also known as the ?Knickerbocker Crisis,? the panic of 1907 shares features with the 2007-08 crisis, including ?shadow banks? in the form high-flying, less-regulated trusts operating beyond the safety net of the time, and a pivotal ?Lehman moment? when Knickerbocker Trust, the second-largest trust in the country, was allowed to fail after J.P. Morgan refused to save it.
Liberty Street Economics , Paper 20161118

Report
Federal Reserve tools for managing rates and reserves
Martin, Antoine; Skeie, David R.; McAndrews, James J.; Palida, Ali (2013-09-01)
The Federal Reserve announced in January 2019 that it would maintain an ample supply of reserves amid its balance sheet reduction. We model the impact of reserves on banks? liquidity and balance sheet costs. In competitive general equilibrium, the optimal supply of reserves equates bank deposit rates to the interest rate paid on excess reserves (IOER), consistent with ample reserves. Raising the Fed?s overnight reverse repo rate up to IOER would increase liquidity, expediently reduce the overabundance of reserves, and stabilize the volatility of overnight market rates. Empirical analysis ...
Staff Reports , Paper 642

Report
Direct purchases of U.S. Treasury securities by Federal Reserve banks
Garbade, Kenneth D. (2014-08-01)
Until 1935, Federal Reserve Banks from time to time purchased short-term securities directly from the United States Treasury to facilitate Treasury cash management operations. The authority to undertake such purchases provided a robust safety net that ensured Treasury could meet its obligations even in the event of an unforeseen depletion of its cash balances. Congress prohibited direct purchases in 1935, but subsequently provided a limited wartime exemption in 1942. The exemption was renewed from time to time following the conclusion of the war but ultimately was allowed to expire in 1981. ...
Staff Reports , Paper 684

Discussion Paper
A Closer Look at the Fed’s Balance Sheet Accounting
Wolgemuth, Jennifer; Martin, Antoine; Leonard, Deborah (2017-08-04)
An earlier post on how the Fed changes the size of its balance sheet prompted several questions from readers about the Federal Reserve?s accounting of asset purchases and the payment of principal by the Treasury on Treasury securities owned by the Fed. In this post, we provide a more detailed explanation of the accounting rules that govern these transactions.
Liberty Street Economics , Paper 20170804

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