Document Type

Case Study

Case Series

Broad-Based Emergency Liquidity

JEL Codes

G01, G28


As the United States prepared for the century date change (Y2K) on January 1, 2000, uncertainty about computer functioning generated uncertainty in capital markets. The Federal Reserve (Fed) grew particularly concerned that computer malfunctioning would cause disruptions in the short-term federal funds and repurchase (repo) markets. Many market participants indicated early in 1999 that they would restrict their normal trading activities and curtail credit in the weeks leading up to Y2K, which contributed to the Fed’s anticipation that liquidity might dry up. To ease pressures, the Fed created two special facilities through the Open Market Trading Desk of the Federal Reserve Bank of New York (FRBNY). The Special Liquidity Facility (SLF) provided term collateralized funding to depository institutions to “ensure that [they had] adequate liquidity to meet any unusual demands in the period around the period date change.” The Fed designed the facility to have a spread high enough to discourage its use, while still providing a backstop. Daily borrowing at the SLF peaked at $1.2 billion on December 30, 1999. The Fed also created the Standby Financing Facility (SFF) to auction options for overnight repos for dates around the year-end to primary dealers, which we describe in a separate YPFS case (see Leonard 2022).

Date Revised