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Document Type

Case Study

Case Series

Ad hoc Emergency Liquidity Programs

Abstract

On Thursday, March 13, 2008, the US investment bank Bear Stearns Companies approached the Federal Reserve Bank of New York (FRBNY), saying it expected many of its repurchase agreement (repo) counterparties would not “roll,” or renew, their repo agreements the next day. As a result, the firm would be obligated to repay many of its repo liabilities. Without an emergency loan, Bear would be forced to file for bankruptcy on Friday morning, March 14. Before the market opened on Friday, the FRBNY made an overnight loan for $12.9 billion through JPMorgan Chase Bank (JPMC) on a nonrecourse basis, which on-lent the funds to Bear against $13.8 billion in collateral. The purpose of the loan was to give Bear time to reach a private sector solution to its financial stress. Over the weekend, JPMC agreed to acquire Bear with Fed financing in the form of what became known as the Maiden Lane facility. On Monday, March 17, Bear paid off the bridge loan and $4 million in interest. The Fed later described the bridge loan as a successful bridge to the JPMC deal, though some commentators have criticized the loan for failing to reassure markets about Bear’s financial health. Although the Fed had authorized the loan for up to 28 days, by Friday evening, policymakers told Bear’s CEO that he needed to find a buyer before the market opened Monday.

Date Revised

2025-04-15

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