financial crisis

Fiscal Authority assistances

1. (TARP) September 2008. Emergency Economic Stabilization Act of 2008 creates the Troubled Asset Relief Program. 2. (CPP) September 2008. Capital Purchase Program invests $250 billion of TARP money into a handful of financial institutions. 3. (CAP) February 2009. Capital Assistance Program. Part of TARP, Geithner modifies CPP with this. 4. (ARRA) February 2009. American Recovery and Reinvestment Act of 2009. US economic stimulus package.

Central Bank types of assistance

1. Credit to individual institutions 2. Credit to malfunctioning interbank markets 2a. Addressing illiquidity in interbank markets 2b. Provision of term funding 2c. Provision of liquidity in foreign currency 3. Liquidity provision to specific markets 3a. Alleviating collateral constraints in private funding mar- kets 3b. Liquidity provision to "shadow banks" 3c. Reducing illiquidity premia in credit markets

Run begins

August 9, 2007: the run begins in the form of increased haircuts on repo. The rate of serious delinquencies rises notably for sub-prime mortgages with adjustable rate, at about 16 percent.

TAF

December 2007: Fed creates Term Auction Facility (TAF) to address funding pressures and stigma associated with primary credit program (dis- count window). TAF allows the Fed to auction set amounts of collateral- backed short-term loans to depository institutions. This is done under the purview of the discount window authority.

dollar liq- uidity swaps

December 2007: Fed establishes, with the ECB and SNB, dollar liq- uidity swaps. These allow foreign central banks to purchase, in its own currency, dollars at the prevailing exchange rate. Later, the foreign central bank would sell back teh dollars to the Fed at the same rate at a fixed date - sometimes 3 months after the first leg.

Bank of America

Fed, Treasury and FDIC provide Bank of America with protection against declines on a $118 billion pool of mostly mortgage re- lated assets.

ECB Full allotment

Late 2008: ECB moves to full allotments at fixed rate refinancing of term funding, thereby establishing a fully elastic supply of central bank reserves.

Maiden Lane II

Late-September 2008: Lehman's bankruptcy strains AIG's obligations. The Fed provides AIG and $85 billion lien of credit secured by all the assets of AIG and its primary non-regulated subsidiaries.

Maiden Lane I

March 14, 2008: the New York Fed, as authorized by the Federal Re- serve Board under Section 13(3)'s exigent circumstances clause, agrees to form Maiden Lane LLC. The FRBNY extended a $29 billion credit line to Maiden Lane LLC, along with $1 billion from JPMC, with which Maiden Lane purchase the mortgage-related obligations of Bear Sterns with no fur- ther recourse from JP Morgan Chase (i.e the government cannot seize JP Morgan Chase's assets if the mortgage debt collateral becomes insufficient to repay the loan).

PDCF

March 2008: Fed creates Primary Dealer Credit Facility to provide liq- uidity to tri-party repo market by extending overnight loans to primary dealers.

TSLF

March 2008: Fed uses emergency authority to establish the Term Secu- rities Lending Facility, which auctions off loans of US treasury securities to primary dealers in exchange for a wider pool of collateral on a 28-day term. This facility was chosen as a bond-for-bond lending alternative to the term auction facility (TAF), a cash-for-bond program that injects cash directly into the market. A direct injection of cash can affect the federal funds rate and have a negative impact on the value of the dollar. It is also an alternative to the direct purchases of the mortgaged investments, which goes against the Federal Reserve's aim to avoid directly affecting security prices.

TALF

March 2009: Federal Reserve and Treasury announce creation of Term Asset-backed securities loan facility to promote renewed issuance of ABS, thereby increasing the availability of credit to households and small businesses. Under the TALF, the Fed extended non-recourse loans to investors in certain AAA-rated ABS. Treasury, with funding from TARP, provided $20 billion in credit protection to the Fed in connection with the TALF.

Fed's First Response

Mid-August 2007: the Fed's first response is to increase standard open market operations to increase market liquidity. This helped alleviate pressure on the overnight interbank market, but term funding in fed funds and commercial paper remained.

Citi

November 2008: Fed, Treasury and FDIC provide Citi with protection against declines on a $306 billion pool of mostly mortgage related assets.

UBS

October 2008: SNB financed a SPV to purchase illiquid assets from UBS

MMIFF

October 21, 2008: The Money Market Investor Funding Facility (MMIFF) was designed to provide liquidity to U.S. money market investors. Under the MMIFF, the Federal Reserve Bank of New York could provide se- nior secured funding to a series of special purpose vehicles to facilitate an industry-supported private-sector initiative to finance the purchase of eligible assets from eligible investors. This was never used, though.

CPFF

October 27, 2008: The Federal Reserve created the Commercial Paper Funding Facility (CPFF) to provide a liquidity backstop to U.S. issuers of commercial paper. The CPFF was intended to improve liquidity in short-term funding markets and thereby contribute to greater availability of credit for businesses and households. Under the CPFF, the Federal Reserve Bank of New York financed the purchase of highly rated unse- cured and asset-backed commercial paper from eligible issuers via eligible primary dealers.

CPP

October 28, 2008: The Capital Purchase Program (CPP) invests $250 billion of TARP money (which had been allocated and passed 2 week before with the original purpose of purchasing MBS and whole loans) in preferred stock and equity warrants of the nine large financial institutions. It is ended by the Capital Assistance Program in February 2009.

Emergency Economic Stabiliza- tion Act of 2008

October 3, 2008: Congress passes the Emergency Economic Stabiliza- tion Act of 2008, which authorizes the purchase of assets and equity for the Treasury fund called the Troubled Asset Relief Program. $700 billion.

Northern Rock

September 14, 2007: Northern Rock is unable to refinance securitized mortgages.

Lehman Brothers Bankruptcy

September 15, 2008: Lehman Brothers files for bankruptcy protection. This is the largest bankruptcy in American history at $600 billion.

Reserve Primary Fund

September 16, 2008: Prominent money market mutual fund (MMMF) Reserve Primary Fund broke the buck at 97 cents as a result of Lehman related losses. This leads to $450 billion in withdrawals from MMMFs over the next 4 weeks.

AMLF

September 22, 2008: The Fed creates the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility to finance deposi- tory institutions' purchase asset-backed commercial paper (ABCP) from MMMFs.The Fed offered the funds on a non-recourse basis with no hair- cut. That is, the Fed would lend cash to the borrowers who could then - because it was a non-recourse loan - ABCP to repay the full value of the loan. Therefore, the Fed assumed all the credit risk of the ABCP.