2016/9/20 Response of the fed to 9 /11 Response of the Fed to 9/11 3. Daylight overdraft fees scrapped egative reserve position in securities via repurchase agreements, which exchanges a ommercial banks' accounts at the fed, and would usually less liquid asset for a more liquid asset The Fed held about s61 billion of securities on September The Fed scrapped these fees for 10 days after 9/11 2th-around 2.5 times the amount they held the previous Overdrafts peaked on September 14th at $150 billion 2. Direct lending of funds via the Discount window 4. The establishment of ' Swap Lines A US monetary policy tool that allows financial institutions Central Banks to borrow money from the fed in order to help reduce short term liquidity shortages untry s Central bank $46 billion was distributed out on September 12th-200 The fed set up Swap lines with the ECB and BofE of s50 times that of the average day billion and S10 billion respecti Response of the Fed to 9/11 Response to the 2008 Financial Crisis 5. 50 basis point cut The Fed undertook"a series of unprecedented policy actions to contain the broader risks the financial September 17th crisis posed to the economy. Provide liquidi Decreases the cost of Repair failing financial markets Support crucial financial institutions flow of income and provides liquidity. Response to the 2008 Financial Crisis Response to the 2008 Financial Crisis lEnder of last Resort" Too Target Federal Funds and Discount Rates Discount window vailable credit was offered 3. The Fed lent to foreign central banks Term auction Facility (2007 /11/2-2010/3/8) TAF issued 28-dayfand later 84-day) loans and auctioned "" mary credit program, but those still considered financially sound. These loans were fully collateralized and allocated in Primary Dealer Credit Facility(2008/3/17-2010/2/1) 62016/9/20 6 Response of the Fed to 9/11 1. Open market operations – The Fed's New York Trading Desk bought US Treasury securities via repurchase agreements, which exchanges a less liquid asset for a more liquid asset – The Fed held about $61 billion of securities on September 12th ‐ around 2.5 times the amount they held the previous Wednesday 2. Direct lending of funds via the Discount Window – A US monetary policy tool that allows financial institutions to borrow money from the Fed in order to help reduce short term liquidity shortages. – $46 billion was distributed out on September 12th ‐ 200 times that of the average day 1‐31 Response of the Fed to 9/11 3. Daylight overdraft fees scrapped – Daylight overdraft creates a negative reserve position in commercial banks’ accounts at the Fed, and would usually incur fees – The Fed scrapped these fees for 10 days after 9/11 – Overdrafts peaked on September 14th at $150 billion ‐ 60% higher than usual 4. The establishment of 'Swap Lines' – A reciprocal currency agreement between Central Banks to ensure a liquidity of  a country's currency  at another country's Central bank – The Fed set up Swap lines with the ECB and BofE of $50 billion and $10 billion respectively 1‐32 Response of the Fed to 9/11 • 5. 50 basis point cut – Rate dropped on September 17th – Dropped from 3.5% to 3.0% – Decreases the cost of borrowing from the Fed – Increases the circular flow of income and provides liquidity. 1‐33 Response to the 2008 Financial Crisis • The Fed undertook “a series of unprecedented policy actions to contain the broader risks the financial crisis posed to the economy. – Provide liquidity – Repair failing financial markets – Support crucial financial institutions 1‐34 Response to the 2008 Financial Crisis • Conventional Interest Rate Tools Source： http://www.newyorkfed.org/markets/statistics/dlyrates/fedrate.html. 1‐35 Response to the 2008 Financial Crisis • “Lender of Last Resort” Tools – Discount window 1. Maturity of loans was extended; 2. Available credit was offered; 3. The Fed lent to foreign central banks – Term Auction Facility (2007/11/2 – 2010/3/8) TAF issued 28‐day(and later 84‐day) loans and auctioned them off to a wider set of institutions than that of the primary credit program, but those still considered financially sound. These loans were fully collateralized and allocated in a Dutch auction with no reserve price. – Primary Dealer Credit Facility(2008/3/17 – 2010/2/1) 1‐36