Federal reserve intervention and systemic risk during financial crises

John Sedunov

Journal of Banking & Finance, 2021, vol. 133, issue C

Abstract: I examine the relation between Federal Reserve emergency actions and aggregate U.S. systemic risk during the Global Financial Crisis (GFC) and the COVID-19 crisis. I divide these actions in to three categories: lender of last resort (LLR), liquidity provision, and open market operations (OMO). Evidence suggests that during the GFC, liquidity provision and OMO was related*⁎Associate Professor, Department of Finance and Real Estate, Villanova School of Business. E-mail: john.sedunov@villanova.edu. I am grateful for helpful comments from Allen Berger, Lamont Black, Jennifer Dlugosz, Mike Pagano, and Alvaro Taboada and for comments from participants at the 2019 Southern Financial Association Annual Meetings.Charlotte Bern and Jonathan Wadowski provided excellent research assistance. All errors are my own. to reduced systemic risk, while evidence on LLR actions is mixed. Further, I find that Federal Reserve actions were related to increased stability in other G8 financial systems during the GFC, and that after the GFC, facilities that remained operational were no longer related to aggregate systemic risk. I do not find a relation between Federal Reserve actions and systemic risk during the COVID-19 crisis. Together, these findings can inform actions and policy decisions in future financial crises.

Keywords: Systemic risk; Financial crisis; Federal reserve; Regulation (search for similar items in EconPapers)
JEL-codes: G01 G20 G21 G28 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:133:y:2021:i:c:s0378426621001692

DOI: 10.1016/j.jbankfin.2021.106210

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