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, July 17, 2012
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 14 foreign central banks. These swap arrangements assisted 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, in November 2010, the FOMC decided to expand its holdings of longer-term securities and announced that it intended to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. This expansion was completed as scheduled, on June 20, 2011.
On September 21, 2011, the FOMC announced that it would extend the average maturity of its holdings of securities--by purchasing $400 billion par of Treasury securities with remaining maturities of 6 years to 30 years and selling an equal par amount of Treasury securities with remaining maturities of 3 years or less--by the end of June 2012. The FOMC also announced that it will reinvest principal payments from its holdings of agency debt and agency MBS in agency MBS. On June 20, 2012, the FOMC announced that it would continue its maturity extension program through the end of the 2012, resulting in the purchase, as well as the sale and redemption, of about $267 billion in Treasury securities.
Starting in September 2012, the Federal Reserve further increased policy accommodation by purchasing additional 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.