Document Type

Case Studies


The 2007–09 financial crisis reached a critical stage in March 2008. Amid falling house prices and downgrades of mortgage-related securities, financial markets became severely disrupted. The Federal Reserve—the US central bank—became increasingly concerned about the inability of the 20 primary dealers, including the five largest US investment banks, to fund themselves in short-term funding markets, such as the repurchase agreement market, then estimated at $10 trillion. In response, the Fed created several emergency lending facilities to restore market liquidity that required the Fed to invoke Section 13(3) of the Federal Reserve Act. The Term Securities Lending Facility authorized the Federal Reserve Bank of New York to lend to primary dealers up to $200 billion of highly liquid US Treasuries against collateral that was particularly illiquid at the time. Eligible collateral initially included triple-A private-label mortgage-backed securities but was later broadened. In July 2008, an additional $50 billion was allocated for a TSLF Options Program. The TSLF operated between March 27, 2008, and February 1, 2010. Usage peaked at $236 billion in October 2008. Overall, 18 of the 20 primary dealers participated and the Fed collected $781 million in fees.