Emergency Collateral Upgrades

Mark Carlson and Marco Macchiavelli

No 2018-078, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: During the 2008-09 financial crisis, the Federal Reserve established two emergency facilities for broker-dealers. One provided collateralized loans. The other lent securities against a pledge of other securities, effectively providing collateral upgrades, an operation similar to activities traditionally undertaken by broker-dealers. We find that these facilities alleviated dealers' funding pressures when access to repos backed by illiquid collateral deteriorated. We also find that dealers used the facilities, especially the ability to upgrade collateral, to continue funding their own illiquid inventories (avoiding potential fire-sales), and to extend funding to their clients. Exogenous variation in collateral policies at one facility allows a causal interpretation of these stabilizing effects.

Keywords: Financial crisis; Lender of last resort; Collateral; Dealers; Repo (search for similar items in EconPapers)
JEL-codes: E58 G01 G24 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2018-11-15
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2018-78

DOI: 10.17016/FEDS.2018.078

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