Fed confronts financial crisis by expanding its role as lender of last resort

Danielle DiMartino, John Duca and Jessica Renier

Economic Letter, 2009, vol. 4, issue feb, No 2

Abstract: The current recession has deepened because of shrinking credit flows from banks, nonbank lenders and securities markets. This contrasts with the early 1990s, when new bonds and commercial paper cushioned a bank credit crunch, and with the high-tech investment bust of the early 2000s, when steady bank lending lessened the impact of receding bond and equity finance markets. ; This time, breakdowns in key credit markets posed great risks to the financial system and the broader economy. The Federal Reserve responded with unprecedented measures, expanding its role as lender of last resort in an effort to unclog credit markets and free up the financial flows vital to a well-functioning economy.

Keywords: Interbank market; economic conditions - United States; Commercial paper; Discount window; Financial crises; Mortgage-backed securities; Asset-backed financing (search for similar items in EconPapers)
Date: 2009
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