Document Type

Case Study

Case Series

Market Liquidity Programs

JEL Codes

G01, G28


On March 16, 2008, the Federal Reserve created the Primary Dealer Credit Facility, or PDCF, to provide overnight funding to primary dealers in the tri-party repurchase agreement (repo) market, where lenders had become increasingly risk averse. Loans were fully secured by (initially) investment-grade securities and offered at the primary credit rate by the Federal Reserve Bank of New York. The eligible collateral was significantly expanded in September 2008, after rumors of Lehman Brothers potentially filing for bankruptcy, to include all of the types of instruments that could be pledged at the two major tri-party repo clearing banks. The PDCF was a means for the Federal Reserve to provide lender-of-last-resort funding directly to primary dealers, including the five largest US investment banks, which it could not do before. The program also served to buy time for dealers to find other methods of financing. During its tenure, the facility was actively used, with the highest daily amount of outstanding loans at $130 billion, which occurred in September 2008. Overall, 18 of the 20 primary dealers participated in the program, although, unlike the other major program targeting primary dealers, the Term Securities Lending Facility, most participation was by US firms. The facility was closed on February 1, 2010. All loans extended under this facility were repaid in full, with $593 million in interest and fees collected. It has been credited, with other similar programs, with relieving the severe liquidity stresses on primary dealers during the height of the crisis.

Date Revised