Federal Reserve Liquidity Provision during the Financial Crisis of 2007-2009 - Federal Reserve Bank of New York

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Staff Reports

Federal Reserve Liquidity Provision during the Financial Crisis of 2007-2009

July 2012 Number 563

JEL classification: E58, G01

Author: Michael J. Fleming

This paper examines the Federal Reserve's unprecedented liquidity provision during the financial crisis of 2007-2009. It first reviews how the Fed provides liquidity in normal times. It then explains how the Fed's new and expanded liquidity facilities were intended to enable the central bank to fulfill its traditional lender-of-last-resort role during the crisis while mitigating stigma, broadening the set of institutions with access to liquidity, and increasing the flexibility with which institutions could tap such liquidity. The paper then assesses the growing empirical literature on the effectiveness of the facilities and provides insights as to where further research is warranted.

Available only in PDF pdf

19 pages / 408 kb

For a published version of this report, see Michael J. Fleming, "Federal Reserve Liquidity Provision during the Financial Crisis of 2007-2009," Annual Review of Financial Economics 4 (October 2012): 161-77.

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