Ad Hoc Emergency Liquidity Programs in the 21st Century

Steven Kelly (), Vincient Arnold (), Greg Feldberg () and Andrew Metrick ()
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Steven Kelly: YPFS, Yale School of Management, https://elischolar.library.yale.edu/journal-of-financial-crises/
Vincient Arnold: YPFS, Yale School of Management, https://elischolar.library.yale.edu/journal-of-financial-crises/
Greg Feldberg: YPFS, Yale School of Management, https://elischolar.library.yale.edu/journal-of-financial-crises/
Andrew Metrick: YPFS, Yale School of Management, https://elischolar.library.yale.edu/journal-of-financial-crises/

Journal of Financial Crises, 2025, vol. 7, issue 1, 57-106

Abstract: This paper surveys 22 case studies of 21st century instances when financial crisis-fighters implemented ad hoc emergency liquidity (AHEL) interventions, interventions designed to provide liquidity to a troubled institution that the authorities believe is systemically important. While emergency liquidity support is often introduced with the real or communicated intention of preventing illiquidity from leading to insolvency, the liquidity crisis should instead be viewed as the manifestation of the market's assessing the firm as nonviable as a going concern. For that reason, authorities should provide AHEL assistance only to institutions that they have deemed viable or that they have committed to make viable through additional interventions, most commonly through a government capital injection or merger with a stronger institution. Despite AHEL assistance, which the authorities in several cases sized to meet all potential funding outflows from the troubled firms, in no cases did liquidity provision alone prove a "cure" to the run on the institution. Crisis-fighters also should not use the terms of an AHEL intervention to manage moral hazard. Moral hazard can be addressed in the more structural policy responses that will need to follow AHEL assistance. AHEL programs should focus on providing sufficient liquidity to get the institution through its acute crisis phase.

Keywords: ad hoc emergency liquidity; Bagehot's dictum; crisis-fighting; financial stability; lender of last resort; solvency; viability (search for similar items in EconPapers)
JEL-codes: G01 G28 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ysm:ypfsfc:v:7:y:2025:i:1:p:57-106

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