Credit and Liquidity Programs and the Balance Sheet
- Crisis response
- Fed's balance sheet
- Fed financial reports
- Federal Reserve liabilities
- Recent balance sheet trends
- Open market operations
- Central bank liquidity swaps
- Lending to depository institutions
- Lending to primary dealers
- Other lending facilities
- Support for specific institutions
The Federal Reserve's response to the financial crisis and actions to foster maximum employment and price stability
The Federal Reserve responded aggressively to the financial crisis that emerged in the summer of 2007. The reduction in the target federal funds rate from 5-1/4 percent to effectively zero was an extraordinarily rapid easing in the stance of monetary policy. In addition, the Federal Reserve implemented a number of programs designed to support the liquidity of financial institutions and foster improved conditions in financial markets. These programs led to significant changes to the Federal Reserve's balance sheet.
While many of the crisis-related programs have expired or been closed, the Federal Reserve continues to take actions to fulfill its statutory objectives for monetary policy: maximum employment and price stability. Over recent years, many of these actions have involved substantial purchases of longer-term securities aimed at putting downward pressure on longer-term interest rates and easing overall financial conditions.
- Policy Implementation Framework
The Crisis and Policy Response
Speech by Chairman Ben S. Bernanke, Jan. 13, 2009
The Federal Reserve's Policy Actions during the Financial Crisis and Lessons for the Future
Speech by Vice Chairman Donald L. Kohn, May 13, 2010
Semiannual Monetary Policy Report to the Congress
Testimony by Chairman Ben S. Bernanke, February 26, 2013
The tools described in this section can be divided into three groups. The first set of tools, which are closely tied to the central bank's traditional role as the lender of last resort, involve the provision of short-term liquidity to banks and other depository institutions and other financial institutions. The traditional discount window, Term Auction Facility (TAF), Primary Dealer Credit Facility (PDCF), and Term Securities Lending Facility (TSLF) fall into this category. Because bank funding markets are global in scope, the Federal Reserve also approved bilateral currency swap agreements with several foreign central banks. The swap arrangements assist these central banks in their provision of dollar liquidity to banks in their jurisdictions.
A second set of tools involve the provision of liquidity directly to borrowers and investors in key credit markets. The Commercial Paper Funding Facility (CPFF), Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), Money Market Investor Funding Facility (MMIFF), and the Term Asset-Backed Securities Loan Facility (TALF) fall into this category. All of the programs in the first two sets of tools are described in detail elsewhere on this website.
As a third set of instruments, the Federal Reserve expanded its traditional tool of open market operations to support the functioning of credit markets, put downward pressure on longer-term interest rates, and help to make broader financial conditions more accommodative through the purchase of longer-term securities for the Federal Reserve's portfolio. For example, starting in September 2012, the FOMC decided to increase policy accommodation by purchasing agency-guaranteed mortgage-backed securities (MBS) at a pace of $40 billion per month in order to support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate. In addition, starting in January 2013, the Federal Reserve began purchasing longer-term Treasury securities at a pace of $45 billion per month. In December 2013, the FOMC announced a modest reduction in the monthly pace of asset purchases and indicated it would likely reduce the pace of asset purchases in further measured steps at future meetings if incoming data pointed to continued improvement in labor market conditions and inflation moving back toward the Committee’s 2 percent longer-run objective.