BANK CAPITAL, THE ANNOUNCEMENT OF THE FEDERAL RESERVE'S TERM AUCTION FACILITY, AND BANK BORROWING DURING THE FINANCIAL CRISIS OF 2007–2008

Mujtaba Zia, Imre Karafiath and Niranjan Tripathy

Journal of Financial Research, 2018, vol. 41, issue 4, 485-506

Abstract: During the financial crisis of 2007–2008, the Federal Reserve System created emergency lending facilities to address the liquidity problem in financial markets and alleviate the stigma attached to borrowing from its traditional lending facility, the discount window. The most important and commonly used facility was the Term Auction Facility (TAF) announced December 12, 2007. Using event‐study methodology, we find that stock prices of TAF participating banks experienced a significant −2.84% average cumulative abnormal return around the announcement date. The negative abnormal returns correlated with the peak loan balances reached on average 416 days after the announcement.

Date: 2018
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