Emergency loans and collateral upgrades: How broker-dealers used Federal Reserve credit during the 2008 financial crisis

Mark Carlson and Marco Macchiavelli

Journal of Financial Economics, 2020, vol. 137, issue 3, 701-722

Abstract: During the 2008 financial crisis, the Federal Reserve established two emergency facilities for broker-dealers: one provided collateralized loans; the other, collateral upgrades. These facilities alleviated dealers’ funding pressures when access to repos backed by illiquid collateral deteriorated. The ability to upgrade collateral allowed dealers to continue funding their own illiquid inventories (avoiding potential firesales) and to provide better bond market liquidity. It also helped sustain dealers’ credit to hedge fund clients, which in turn posted relatively better returns.

Keywords: Financial crisis; Lender of last resort; Repo; Collateral; Dealers (search for similar items in EconPapers)
JEL-codes: E58 G01 G24 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:137:y:2020:i:3:p:701-722

DOI: 10.1016/j.jfineco.2020.03.005

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