Working Paper No. 698
$29,000,000,000,000: A Detailed Look at the Fed’s Bailout by Funding Facility
and Recipient
by
James Felkerson
University of Missouri–Kansas City
December 2011
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Copyright © Levy Economics Institute 2011 All rights reserved
1
ABSTRACT
There have been a number of estimates of the total amount of funding provided by the Federal
Reserve to bail out the financial system. For example, Bloomberg recently claimed that the
cumulative commitment by the Fed (this includes asset purchases plus lending) was $7.77
trillion. As part of the Ford Foundation project “A Research and Policy Dialogue Project on
Improving Governance of the Government Safety Net in Financial Crisis,” Nicola Matthews and
James Felkerson have undertaken an examination of the data on the Fed’s bailout of the
financial system—the most comprehensive investigation of the raw data to date. This working
paper is the first in a series that will report the results of this investigation.
The extraordinary scope and magnitude of the recent financial crisis of 2007–09 required
an extraordinary response by the Fed in the fulfillment of its lender-of-last-resort function. The
purpose of this paper is to provide a descriptive account of the Fed’s response to the recent
financial crisis. It begins with a brief summary of the methodology, then outlines the
unconventional facilities and programs aimed at stabilizing the existing financial structure. The
paper concludes with a summary of the scope and magnitude of the Fed’s crisis response. The
bottom line: a Federal Reserve bailout commitment in excess of $29 trillion.
Keywords: Global Financial Crisis; Fed Bailout; Lender of Last Resort; Term Auction Facility;
Central Bank Liquidity Swaps; Single Tranche Open Market Operation; Term Securities
Lending Facility and Term Options Program; Maiden Lane; Primary Dealer Credit Facility;
Asset-backed Commercial Paper Money Market Mutual Fund Liquidity Facility; Commercial
Paper Funding Facility; Term Asset-backed Securities Loan Facility; Agency Mortgage-backed
Security Purchase Program; AIG Revolving Credit Facility; AIG Securities Borrowing Facility
JEL Classifications: E58, E65, G01
2
INTRODUCTION
There have been a number of estimates of the total amount of funding provided by the Federal
Reserve to bail out the financial system. While the Fed at first refused to provide data on its
bailout, the Congress—led by Senator Bernie Sanders—ordered the Fed to provide an
accounting of its actions. Further, Bloomberg successfully pursued a Freedom of Information
Act suit for release of detailed data. That resulted in a “dump” of 25,000 pages of raw data.
Bloomberg has recently claimed that the cumulative “spending” by the Fed (this includes asset
purchases plus lending) was $7.77 trillion. However, the reports have not been sufficiently
detailed to determine exactly what was included in that total.
We have conducted the most comprehensive investigation of the raw data to date. We
find that the total spending is actually over $29 trillion. This is the first of a series of working
papers in which we will present our results. We hope that other researchers will compare these
results with their own, and are providing detailed break-downs to aid in such comparisons.
The extraordinary scope and magnitude of the recent financial crisis of 2007-2009
required an extraordinary response by the Fed in the fulfillment of its lender of last resort
function (LOLR). The Fed’s response did not disappoint; it was truly extraordinary. The
purpose of this paper is to provide a descriptive account of the Fed’s response to the recent
financial crisis. In an attempt to stabilize financial markets during the worst financial crisis since
the Great Crash of 1929, the Fed engaged in loans, guarantees, and outright purchases of
financial assets that were not only unprecedented (and of questionable legality), but
cumulatively amounted to over twice current U.S. gross domestic product. The purpose of this
paper is to delineate the essential characteristics and logistical specifics of the veritable
“alphabet soup” of LOLR machinery rolled out to save the world financial system. We begin by
making a brief statement regarding the methodology adopted in developing a suitable method
with which to measure the scope and magnitude of the Fed’s crisis response. The core of the
paper will follow, outlining the unconventional facilities and programs aimed at stabilizing (or
“saving”) the existing financial structure. Only facilities in which transactions were conducted
are considered in the discussion (some facilities were created but never used). The paper will
conclude with a summary of the scope and magnitude of the Fed’s crisis response. In later
working papers we will continue to provide more detailed analysis of the spending.
3
METHODOLOGY
The explicit objective of LOLR operations is to halt the initiation and propagation of financial
instability through the provision of liquidity to individual financial institutions or financial
markets; or both. At any given moment in time, the available supply of ultimate liquidity is
determined by the actions of the Fed and the U.S. Treasury. As the LOLR to solvent financial
institutions, the Fed has traditionally found it satisfactory to accomplish its LOLR responsibility
through conventional channels. The conventional tools are threefold. When acting as the LOLR,
the Fed can increase the availability of liquidity by lending directly to institutions through the
discount window; transactions of this nature are conducted at the initiative of participants. It can
also make the terms upon which it lends to institutions more generous by decreasing the rate it
charges for borrowing or lengthening the repayment period for loans. In recent years, however,
preoccupation with control of the money stock has shifted emphasis from measures conducted at
the initiative of the borrower to those undertaken at the initiative of the Fed. This new line of
thinking holds that the provision of liquidity in times of crisis should be executed through the
medium of open market operations. This line of thought argues that the market mechanism will
efficiently allocate liquidity to those who have the greatest need during times of heightened
demand. And so this third method has come to dominate in Fed actions.
In response to the gathering financial storm, the Fed acted quickly and aggressively
through conventional means by slashing the federal funds rate from a high of 5.25 percent in
August 2007 to effectively zero by December 2008. The Fed also decreased the spread between
its primary lending rate at the discount window and the federal funds rate to 50 basis points on
August 17, 2007, as well as extending the term from overnight to up to 30 days. On March 16,
2008, the Fed further reduced the spread to 25 basis points and extended terms up to 90 days.
However, the efficacy of the Fed’s conventional LOLR tools had little appreciable effect during
the initial stages of the recent financial crisis. Moreover, the period of moderation brought about
by such measures was of relatively short duration. These actions largely failed to ameliorate
rapidly worsening conditions in opaque markets for securitized products such as mortgage
backed securities (MBS).
In an attempt to counter the relative ineffectiveness of its conventional LOLR tools, the
Fed designed and implemented a host of unconventional measures, unprecedented in terms of
size or scope and of questionable legality. The goal of these unconventional measures was to
4
explicitly improve financial market conditions and, by improving the intermediation process, to
stabilize the U.S. economy as a whole. The authorization of many of these unconventional
measures would require the use of what was, until the recent crisis, an ostensibly archaic section
of the Federal Reserve Act—Section 13(3), which gave the Fed the authority “under unusual
and exigent circumstances” to extend credit to individuals, partnerships, and corporations.
1
In an attempt to halt growing financial instability, the Fed ballooned its balance sheet
from approximately $900 billion in September 2008 to over $2.8 trillion dollars as of today.
Figure 1 depicts the weekly composition of the asset side of the Fed’s balance sheet from
January 3, 2007 to November 10, 2011. As is clearly indicated in the graph, the Fed’s response
to events of that fateful autumn of 2008 resulted in an enlargement of its balance sheet from
$905.6 billion in early September 2008 to $2,259 billion by the end of the year—an increase of
almost 150 percent in just three months! This initial spike in the size of the Fed’s balance sheet
reflects the coming online of a host of unconventional LOLR programs, and depicts the extent
to which the Fed intervened in financial markets. The graph also depicts the winding down of
unconventional tools starting in early 2009. However, the decrease was of short duration, as the
focus of the Fed shifted from liquidity provisioning to the purchase of long-term securities—
which, as of November 10, 2011, comprise approximately 85 percent of the Fed’s balance sheet.
Figure 2 shows the structure of Fed liabilities over the same period. Casual inspection of
the graph indicates the expansion of the Fed’s balance sheet was accomplished entirely through
the issuance of reserve balances, creating liquidity for financial institutions.
Before moving on to an analysis of the characteristics of each of the facilities
implemented by the Fed in its bailout, a methodological note is in order. We have elected to
adopt a twofold approach to measuring the scale and magnitude of the Fed’s actions during and
since the financial crisis. The composition of the Fed’s balance sheet is expressed in terms of
stocks; that is, it reflects the Fed’s asset and liability portfolio at a moment in time. However,
the provision of liquidity in the form of reserves by the Fed in the purchase of assets manifests
itself as a flow. The outstanding balance of assets and liabilities held by the Fed adjust as
transactions are conducted. This is simply a definitional outcome of double-entry accounting.
When private sector economic units repay loans or engage in liquidity-absorbing transactions,
1
With the passage of Dodd Frank, the Fed must now make extraordinary crisis measures “broad based.” What
exactly “broad based” connotes remains to be seen.
5
the Fed’s balance sheet shrinks. Conversely, when private sector agents participate in liquidity-
increasing transactions with the Fed, the Fed’s balance sheet increases in size.
The changing composition and size of the Fed’s balance sheet offers great insight into
the scope of the Fed’s actions since the crisis. As new, unconventional programs were initiated,
they represented a new way for the Fed to intervene in the financial system. Furthermore, given
that many of the programs were specifically targeted at classes of financial institutions or
markets, and later at specific financial instruments, we are able to identify the markets or
individual financial institutions that the Fed deemed worthy of “saving.” To account for changes
in the composition of the Fed’s balance sheet as transactions occur and are settled, we shall
report two variables referencing the weekly influence of an unconventional facility on the
Figure 1 Fed Assets, in billions, 1/3/2002-9/28/2011
Source: Federal Reserve H.4.1 Weekly Statistical Release and other Fed Sources
0
500
1000
1500
2000
2500
3000
3500
1/3/2007 1/3/2008 1/3/2009 1/3/2010 1/3/2011
Allothercategories
OtherAssets
CBLS
AIA/ALICO
MaidenLane's
CPFF
TALF
OtherCreditExtensions(includes
AIGRCF)
AMLF
6
Figure 2 Fed Liabilities, in billions, 1/3/2002-9/28/2008
Source: Federal Reserve H.4.1 Weekly Statistical Release and other Fed Sources
composition and size of the asset side of the Fed’s balance sheet: the weekly amount
outstanding (stock), and the weekly amount lent (flow). The amount outstanding adjusts due to
the repayment process, but fails to capture the entire picture. The whole image emerges when
we include the weekly amount lent. As will be seen, many of the unconventional actions taken
by the Fed were the result of a targeted response to a particularly traumatic event. Given that the
respective facilities reflect different terms of repayment, and that initial usage of a crisis facility
after an adverse shock was large, the amount outstanding will often increase to a high level and
remain there until transactions are unwound. This is captured by the aforementioned “spike” in
the Fed’s balance sheet. Considering the disparity between lending and repayment, special
emphasis will be placed on the peak dates for the amounts lent and outstanding since such time
periods were often associated with excessive turmoil in financial markets. However, this leaves
us with a dilemma: How are we to measure the magnitude of the Fed’s bailout?
Our attempt to capture the magnitude of the Fed’s bailout is informed by the idea that
when the Fed operates as LOLR, it interrupts the normal functioning of the market process
‐3500
‐3000
‐2500
‐2000
‐1500
‐1000
‐500
0
1/3/2007 1/3/2008 1/3/2009 1/3/2010 1/3/2011
TotalCapital
Otherliabilities
OtherDeposits
ForeignOfficialDeposits
SFA
TGA
Otherdepositsbydepository
institutions
TermDeposits
ReverseRepos
7
(Minsky 1986). To provide an account of the magnitude of the Fed’s bailout, we argue that each
unconventional transaction by the Fed represents an instance in which private markets were
incapable or unwilling to conduct normal intermediation and liquidity provisioning activities.
We exclude actions directed at the implementation of monetary policy, or what have been
identified as the conventional tools of LOLR operations. Thus, to report the magnitude of the
bailout, we have calculated cumulative totals by summing each transaction conducted by the
Fed. It is hoped that reference to the changing composition of the Fed’s balance sheet and
cumulative totals will present both a narrative regarding the scope of the Fed’s crisis response as
well as inform readers as to the sheer enormity of the Fed’s response.
To sum, there are three different measures which we will report; each of which is
important in capturing a different aspect of the bailout. First, there is the size of the Fed’s
balance sheet at a point in time—the total of its assets and liabilities. That tells us how much
ultimate liquidity the Fed has provided; it also gives some measure of the risks to the Fed (for
example, by looking at its stock of risky assets purchased from banks). Next, there is the flow of
lending over a period, as a new facility is created to deal with an immediate need for funds.
Spikes will indicate particular problems in the financial sector that required the Fed’s
intervention. Finally, there is the cumulative total of all the funds supplied by the Fed outside
“normal” monetary policy operations, which gives an idea of the scope of the impact of the
global financial crisis.
The Facilities (or the Big Bail)
Several times, the Fed has issued public statements arguing that its crisis response machinery
was implemented sequentially and consists of three distinct “Stages.” Each “Stage” can be
broadly viewed as a response to the evolution of the crisis as it proliferated through financial
markets. The characteristics of each facility within the different “Stages” were largely
conditioned by a more or less shared set of objectives.
2
The presentation of the Fed’s response
as sequential responding to events is useful for the categorization of the unconventional LOLR
operations. The rationale for and purpose of the programs initiated during the different “Stages”
is indeed chronologically associated with economic events. However, this approach has a major
shortcoming in that it does not take into account actions on the part of the Fed directed at
2
See Bernanke 2009 or Sarkar 2009 for an account of this classification scheme.
8
specific institutions. We have chosen to adopt the “Stages” approach due to its merit as a
narrative explaining the Fed’s response to major events over the course of the crisis, and
included the support provided by the Fed to specific institutions that occurred within the period
of time with which a “Stage” is identified. Within each “Stage,” we shall present the individual
facilities in chronological order.
Stage One: Short-Term Liquidity Provision
Crisis facilities associated with Stage One were addressed at the provision of short-term
liquidity to solvent banks and other depository institutions as well as to other financial
institutions (Bernanke 2009). Facilities mobilized under the auspices of Stage One were aimed
at “improving aggregate liquidity and also the distribution of liquidity across financial
intermediaries” (Sarkar 2009). Sarkar (2009) and Bernanke (2009) identify the objectives of the
Stage One facilities as being consistent within the intent of the Fed’s traditional LOLR mandate.
The Term Auction Facility (TAF) was announced on December 12, 2007. The TAF was
authorized under Section 10B of the FRA and was “designed to address elevated pressures in
short-term funding markets” (Federal Reserve 2007). Historically, depository institutions have
obtained short-term liquidity during times of market dislocation by borrowing from the discount
window or borrowing from other financial institutions. However, the “stigma” associated with
borrowing from the discount window led many depository institutions to seek funding in
financial markets.
3
Given pervasive concern regarding liquidity risk and credit risk, institutions
resorting to private markets were met with increasing borrowing costs, shortened terms, or
credit rationing. To address this situation, the TAF provided liquidity to depository institutions
via an auction format. The adoption of an auction format allowed banks to borrow as a group
and pledge a wider range of collateral than generally accepted at the discount window, thus
removing the resistance to borrowing associated with the “stigma problem.” Each auction was
for a fixed amount of funds with the rate determined by the auction process (Federal Reserve
2008a, p. 219). Initially, the auctions offered a total of $20 billion for 28-day terms. On July 30,
2008, the Fed began to alternate auctions on a biweekly basis between $75 billion, 28-day term
loans and $25 billion, 84-day credit. The TAF ran from December 20, 2007 to March 11, 2010.
3
It is believed by many, including the Fed, that discount window borrowing attaches a “stigma” to the borrower.
Evidence of its usage is often interpreted as a position of financial weakness, and may result in additional pressures
from creditors or inability to find counterparties.
9
Both foreign and domestic depository institutions participated in the program. A total of 416
unique banks borrowed from this facility. Table 1 presents the five largest borrowers in the
TAF. As for aggregate totals, 19 of the 25 largest borrowers were headquartered in foreign
countries. The top 25 banks, all of which borrowed in excess of $47 billion, comprised 72
percent of total TAF borrowing. Of the 416 unique participants, 92 percent borrowed more than
$10 billion. Of the $2,767 billion borrowed by the largest 25 participants, 69 percent ($1,909.3
billion) was borrowed by foreign institutions. The Fed loaned $3,818 billion in total over the
Table 1 Top Five TAF borrowers, in billions
Parent Company Total TAF
loans
Percent of total
Bank of America Corporation $260 7.3%
Barclays PLC (United Kingdom) 232 6.1
Royal Bank of Scotland Group PLC
(United Kingdom)
212 5.5
Bank of Scotland PLC (United
Kingdon)
Wells Fargo
181
154
4.7
4.2
Source: Federal Reserve and GAO
run of this program. As shown in Figure 3, peak monthly borrowing occurred in January 2009 at
$347 billion; while the peak amount outstanding was, in early March 2009, at approximately
$493 billion. The last auction held for this facility occurred on March 8, 2010 with loans
maturing on April, 8 2010. All loans are said to have been repaid in full, with interest, in
agreement with the terms of the facility.
10
Figure 3 TAF, weekly amounts outstanding and lent, in billions
Source: Federal Reserve
As an additional response to “pressures in short-term funding markets,” the Fed opened
up currency swap lines with foreign central banks called the Central Bank Liquidity Swap Lines
(CBLS) (Federal Reserve 2007). With the CBLS, two types of credit arrangements were created
under the authorization of Section 14 of the FRA. Dollar liquidity swaps were arrangements that
allowed foreign central banks to borrow dollars against a prearranged line of credit. The CBLS
are structured as a repo contract in which the borrowing central bank would sell to the Fed a
specified amount of its currency at the exchange rate prevailing in foreign exchange markets.
Simultaneously, the participating foreign central bank would agree to buy back its currency on a
specified date at the same exchange rate at a market-based rate of interest. The first swap lines
were set up in December 2007 with the European Central Bank (ECB) and the Swiss National
Bank (SNB). Over the course of the crisis, the Federal Open Market Committee (FOMC) would
also open up liquidity swap lines with numerous other foreign central banks. The facility ran
0
100000
200000
300000
400000
500000
600000
AmountOutstanding
AmountLent
11
from December 2007 to February 2010 and issued a total of 569 loans.
4
Figure 4 presents the
percentage of total borrowing by foreign bank counterparties. Table 2 presents total borrowing
by each foreign central bank. Peak monthly lending occurred in October 2008 at $2.887 trillion.
Figure 5 shows the peak outstanding, reaching its high in December 2008 at $583.13 billion and
peak weekly lending occurring in mid October 2008 at $851.286 billion. In total, the Fed
Table 2 CBLS borrowing by foreign central bank, in billions
Borrower Total Borrower Total
European Central Bank $8,011.37 Sveriges Riksbank (Sweden) $67.2
Bank of England 918.83 Reserve Bank of Australia 53.175
Swiss National Bank 465.812 Bank of Korea (South Korea) 41.4
Bank of Japan 387.467 Norges Bank (Norway) 29.7
Danmarks Nationalbank
(Denmark)
72.788 Bank de Mexico 9.663
Source: Federal Reserve
lent $10,057.4 billion to foreign central banks over the course of this program as of September
28, 2011. Thus far, all transactions were repaid in full, in accordance with the terms of the swap
agreements.
4
It should be noted that on June 29, 2011, the Fed extension of the swap lines through August 1, 2012 (Federal
Reserve 2011a). As November 10, 2011, $1.96 billion remains outstanding.
12
Figure 4 Foreign central bank borrowing by percentage
Source: Federal Reserve
As it became apparent that existing conventional and nonconventional LOLR operations
were failing to adequately allocate liquidity, the Fed announced on March 7, 2008 that it would
conduct a series of term repurchase transactions (ST OMO) expected to total $100 billion. These
transactions were 28-day repo contracts in which primary dealers posted collateral eligible
under conventional open market operations. The Fed is authorized to engage in open market
transactions by Section 14 of the FRA, and such operations are to be considered a routine part of
the Fed’s operating toolkit. However, we have chosen to include these transactions as part of the
Fed’s unconventional LOLR response, since their explicit purpose was to provide direct
liquidity support to primary dealers. In 375 transactions, the Fed lent a total of $855 billion
dollars. Peak monthly transactions occurred in the months of July, September, and December
2008 at $100 billion, consistent with the level of lending the Fed had expected. As these
transactions were conducted on a schedule, the amount outstanding quickly peaked on April 30,
2008 at $80 billion and remained at that level until the facility was discontinued on December
30, 2008. All extant primary dealers participated. Of these 19 institutions, nine were
headquartered in foreign countries.
EuropeanCentral
Bank
80%
Bankof
England
9%
SwissNationalBank
4%
BankofJapan
4%
AllOthers
3%
13
Figure 5 CBLS weekly amounts lent and outstanding, in billions
Source: Federal Reserve
Table 3 presents the five largest program participants; all of which were foreign
institutions. Transactions conducted with the five largest participants would comprise 65 percent
of the program total. As indicated in Figure 6, 77 percent ($657.91 billion) of all transactions
were conducted with foreign-based institutions.
Table 3 Largest five ST OMO participants, in billions
Participant Total Percent of
total
Credit Suisse (Switzerland) $259.31 30.3%
Deutsche Bank (Germany) 101.03 11.8
BNP Paribas 96.5 11.3
RBS Securities (United Kingdom) 70.45 8.2
Barclays Capital (United Kingdom) 65.55 7.8
Source: Federal Reserve
0
200
400
600
800
1000
1200
1400
1600
12/12/2007 12/12/2008 12/12/2009 12/12/2010
Amountoutstanding,inbillions
Amountlent,inbillions
14
To supplement the aid provided to investment banks through the ST OMO and address
widening spreads in repo markets that were having an adverse impact on the allocation of
liquidity, the Fed announced on March 11, 2008 that it would extend its Treasury lending
program to “promote liquidity in the financing markets for Treasury and other collateral and
thus to foster the functioning of financial markets more generally” (Federal Reserve 2008a).
This nonconventional expansion of a conventional program was named the Term Securities
Lending Facility (TSLF) and began conducting auctions on March 27, 2008.
5
The Fed instituted
a two-fold classification scheme for eligible collateral under the TSLF. Schedule 1 collateral
was identified as “federal agency debt, federal agency residential-mortgage-backed securities
(MBS), and non-agency AAA/Aaa-rated private-label residential MBS” (Federal Reserve
2008a). Schedule 2 included agency collateralized-mortgage obligations and AAA/Aaa-rate
commercial-mortgage-backed securities, in addition to Schedule 1 collateral. In addition to the
TSLF, the Fed announced the TSLF Options Program (TOP), to facilitate access to liquidity in
funding markets during periods of elevated stress, such as quarter-ends, on July 30, 2008. The
Figure 6 Single Tranche Open Market Operations percentage by country
Source: Federal Reserve
5
It needs to be noted that the Fed routinely engages in overnight lending of Treasury securities. Following the Fed's
lead, we include transaction undertaken as part of the TSLF as part of the Fed's crisis response.
Switzerland, 37%
France,11.3%
Germany,
11.8%
United Kingdom,
16.5%
Japan, >1%
United States,
22.9%
15
TOP allowed participants to purchase the right but not the obligation to borrow funds if it
became necessary. The TSLF and TOP facilities are important as they mark the first use by the
Fed of the powers given under Section 13(3) of the FRA.
Eighteen primary dealers participated in the TSLF program, while only 11 accessed the
TOP facility. Of the 18 participants that took part in the TSLF, TOP, or both, eight were foreign
institutions. Table 8 presents the five largest TSLF participants, while Figure 7 shows that 51
percent of total borrowing was undertaken by foreign-based institutions. Figure 8 indicates that
86 percent of total borrowing was done by the nine largest program participants. Figure 9 shows
Table 8 Five largest TSLF and TOP participants, in billions
Borrower Totals Borrower Total
Citigroup Global Markets $348 Credit Suisse (Switzerland) $261
RBS Securities Inc. (United
Kingdom)
291 Goldman, Sachs & Co. 225
Deutsche Bank Securities
(Germany)
277
Source: GAO and Federal Reserve
that the week ending September 10, 2008 was the largest in terms of lending ($110.848 billion)
and the week ending October 1 the peak for amount outstanding ($235.544 billion). The Fed
lent $1,940 billion through the TSLF and another $62.3 billion under TOP for a cumulative total
of $2.0057 trillion. All loans are said to have been repaid on time in full, with interest, within
the terms of the program.
16
Figure 7 TSLF/ TOP borrowing by country
Source: GAO
Figure 8 TSLF percentage by participants
Source: GAO
It is also during Stage One that the first instance of the Fed offering assistance to a
specific institution appears. Throughout early-to-mid March 2008, Bear Stearns was
experiencing severe liquidity funding problems as counterparties refused to enter into
transactions with it, even for assets of unquestionable quality. Problems in securing access to
liquidity resulted in Bear informing the Fed on March 13 that it would most likely have to file
UnitedStates
49%
UnitedKingdom
21%
Germany
12%
Switzerland
16%
France
2%
Citigroup
15%
CreditSuisse
11%
DeutscheBank
12%
GoldmanSachs
10%
MerrillLynch
8%
MorganStanley
5%
RBS
12%
UBS
5%
Barclays
8%
Allothers
14%
17
for bankruptcy the following day should it not receive an emergency loan. In an attempt to find
an alternative to the outright failure of Bear, negotiations began between representatives from
Figure 9 TSLF, weekly amounts lent and outstanding, in billions
Source: Federal Reserve
the Fed, Bear Stearns, and J.P. Morgan. The outcome of these negotiations was announced on
March 14, 2008 when the Fed Board of Governors voted to authorize the Federal Reserve Bank
of New York (FRBNY) to provide a $12.9 billion loan to Bear Stearns through J.P. Morgan
Chase against collateral consisting of $13.8 billion. This bridge loan was repaid on Monday,
March 17 with approximately $4 million in interest. This temporary measure allowed Bear to
continue to operate while courting potential buyers. On March 16, J.P. Morgan agreed to a
provisional merger with Bear Stearns. Subsequent negotiations formulated the structure of J.P.
Morgan’s acquisition of Bear Stearns. The purchase of Bear was accomplished when the
FRBNY ($28.82 billion) and J.P. Morgan ($1.15 billion) funded a special purpose vehicle
(SPV), Maiden Lane, LLC (ML I), which purchased Bear’s assets for the approximate market
value of $30 billion. Authorization to conduct the transaction was provided by Section 13(3) of
the FRA. Maiden Lane, LLC would repay its creditors, first the Fed and then J.P. Morgan, the
0
50
100
150
200
250
3/27/2008
4/27/2008
5/27/2008
6/27/2008
7/27/2008
8/27/2008
9/27/2008
10/27/2008
11/27/2008
12/27/2008
1/27/2009
2/27/2009
3/27/2009
4/27/2009
5/27/2009
6/27/2009
7/27/2009
Amountoutstanding,inbillions
Amountlent,inbillions
18
principal owed plus interest over ten years at the primary credit rate beginning in September
2010. The structure of the bridge loan and ML I represent one-time extensions of credit. As one-
time extensions of credit, the peak amount outstanding occurred at issuance of the loans.
As the Fed endeavored to prevent the disorderly failure of Bear Stearns over the
weekend of March 15
th
, it was also laying the groundwork for implementing a standing credit
facility to assist primary dealers. The Fed officially announced the Primary Dealer Credit
Facility (PDCF) on March 16, 2008 in an attempt to prevent the effects of the Bear Stearns
situation from disrupting markets. The PDCF would function essentially as a “discount window
for primary dealers” and provide a nonmarket source of liquidity that would ease strains in the
repo market (Adrian, Burke, and MacAndrews 2009). Authorized by Section 13(3) of the
Federal Reserve Act, the PDCF would lend reserves on an overnight basis to primary dealers at
their initiative. PDCF credit was secured by eligible collateral, with haircuts applied to provide
the Fed with a degree of protection from risk. Initial collateral accepted in transactions under the
PDCF were investment grade securities. Following the events in September of that year, eligible
collateral was extended to include all forms of securities normally used in private sector repo
transactions. In addition, the Fed approved loans to the United Kingdom-based subsidiaries of
Goldman Sachs, Morgan Stanley, Merrill Lynch, and Citigroup. The PDCF issued 1,376 loans
totaling $8,950.99 billion. Shown in Figure 10 below are the peak weekly amounts outstanding
and lent, occurring on September 26, 2008 at $146.57 billion and $728.643 billion respectively.
6
Table 9 lists the five largest borrowers from the PDCF. Figure 11 captures the heavy usage of
6
Since the PDCF issued overnight loans, Figure 10 should be read carefully. The amount outstanding reflects only
loans for one day, while the amount lent includes the total of loans for a week.
19
Figure 10 PDCF, weekly amounts lent and outstanding, in billions
Source: Federal Reserve
the PDCF by the largest borrowers. As the graph shows, the five largest borrowers account for
85 percent ($7,610 billion) of the total. Eight foreign primary dealers would participate in the
PDCF, borrowing just six percent of the total. The PDCF was closed on February 1, 2010. All
loans extended in this facility have been repaid in full, with interest, in agreement with the terms
of the facility.
Table 9 Five Largest PDCF borrowers, in billions
Borrower Total
Merrill Lynch $2,081.4
Citigroup 2,020,.2
Morgan Stanley 1,912.6
Bear Stearns 960.1
Bank of America 638.9
Source: Federal Reserve
0
100
200
300
400
500
600
700
800
Amountlent
Amountoutstanding
20
Figure 11 PDCF, borrowing by institution
Source: Federal Reserve
In its involvement with American Insurance Group (AIG), the Fed again acted as LOLR
to a specific institution. Confronted by the possibility of the voidance of millions of personal
and business insurance products, the Fed took steps to ensure AIG’s survival through several
targeted measures. To provide AIG with space to create a viable plan for restructuring, the Fed
provided AIG with a revolving credit facility (RCF) on September 16, 2008, which carried an
$85 billion credit line; the RCF lent $140.316 billion to AIG in total. To assist AIG’s domestic
insurance subsidiaries acquire liquidity through repo transactions, a securities borrowing facility
(SBF) was instituted. Cumulatively, the SBF lent $802.316 billion in direct credit in the form of
repos against AIG collateral. As a further step in addressing AIG’s problems maintaining
liquidity and staving off capital pressures, an SPV, Maiden Lane II, LLC (ML II), was created
with a $19.5 billion loan from the FRBNY to purchase residential MBS from AIG’s securities
lending portfolio. The proceeds received by AIG in the sale of its residential MBS portfolio
were used to repay the SBF and terminate that program. To address the greatest threat to AIG’s
restructuring—losses associated with the sizeable book of collateralized debt obligations
(CDOs) on which it had written credit default swaps (CDS)—another SPV, Maiden Lane III,
LLC (ML III), was funded by a FRBNY loan to purchase AIG’s CDO portfolio. The purchases
by ML III totaled $24.3 billion.
MerrillLynch,
23.3
Citigroup,22.6
Morgan
Stanley,21.4
BearStearns&
Co.,Inc.,10.7
Bancof
America
SecuritiesLLC,
7.1
Goldman,Sachs
&Co.,6.6
BarclaysCapital
Inc.,4.6
Allothers,3.8
21
As part of AIG’s divestiture program, the Fed conducted transactions on December 1,
2009 in which the FRBNY received preferred interests in two SPVs created to hold the
outstanding common stock of AIG’s largest foreign insurance subsidiaries, American
International Assurance Company (AIA) and American Life Insurance Company (ALICO). On
September 30, 2010 an agreement was reached between the AIG, the Fed, the U.S. Treasury,
and the SPV trustees regarding the AIA/ALICO transactions to facilitate the repayment of
AIG’s outstanding obligations to the United States government. AIG, the Treasury, and the
FRBNY announced the closing of the recapitalization plan announced on September 30, 2010,
and all monies owed to the RCF were repaid in full January 2011. Section 13(3) of the FRA was
invoked to conduct each facility providing AIG direct assistance. Table 10 lists the specific total
dollar amount for facilities providing AIG with assistance and the amount outstanding as of
November 10, 2011.
Table 10 Facilities providing AIG with assistance, in billions
Facility Total Amount outstanding as of
11/10/2011
RCF $140.316 $0
SBF 802.316 0
Maiden Lane II 19.5 9.336
Maiden Lane III 24.3 18.049
Preferred Interests in AIA/ ALICO 25 0
Source: Federal Reserve
Stage Two: Restart the Flow of Credit by Direct Purchases of Assets
The second stage of actions taken by the Fed represent an even larger departure from
conventional LOLR operations when the Fed, in an attempt to circumvent the inability (or
unwillingness) of financial institutions to engage in the intermediation process, chose to extend
loans directly to support what were viewed as critical credit markets. The goal of the Fed in this
stage of the bailout was to restart the flow of credit to households and businesses by buying
assets in exchange for the most risk-free and liquid of assets—reserves.
The Fed’s first foray into supporting key credit markets occurred in the aftermath of
Lehman Brothers’ bankruptcy. On September 1, 2008, the Reserve Primary Fund, the oldest
money market mutual fund (MMMF) in the U.S., lowered its share price below $1 and “broke
the buck.” As a response to the uncertainty regarding the value of positions in MMMFs,
investors scrambled to withdraw funds. During the week of September 15, investors withdrew
22
$349 billion. The total withdrawn in the following three weeks amounted to an additional $85
billion (Financial Crisis Inquiry Comission 2011, p. 357). To meet withdrawal requests, many
mutual funds were forced to sell assets, triggering increased downward pressure on asset prices.
The creation of the AMLF was an attempt to forestall the liquidation of assets by funds, and
therefore prevent further deflation in asset prices. The Fed responded to this series of events
with a facility targeting the MMMF market.
The Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility
(AMLF) was designed to extend nonrecourse loans to intermediary borrowers at the primary
credit rate. On the same day the AMLF loan was issued, intermediaries used these funds to
purchase high quality asset-backed commercial paper (ABCP) issued by MMMFs. The indirect
process adopted was necessitated by “statutory and fund-specific limitations,” which prevented
the MMMFs from borrowing directly from the Fed. The primary intention of the AMLF was to
allow MMMFs to fund themselves by issuing ABCP to be purchased by intermediaries, with the
larger goal of the program being to provide liquidity in the broader money markets (Federal
Reserve 2009a, p. 53). The AMLF was announced on September 19, 2008 and executed by the
Federal Reserve Bank of Boston (FRBB). All loans were fully collateralized and borrowers and
intermediaries were subject to eligibility requirements. To ensure that the AMLF was being
used in accordance with its stated purpose, the Fed would later require MMMFs to provide
proof of material outflows prior to selling ABCP under the AMLF program (Federal Reserve
2009b). The authorization for the AMLF program would again come from Section 13(3) of the
FRA.
Two institutions, J.P. Morgan Chase and State Street Bank and Trust Company,
constituted 92 percent of AMLF intermediary borrowing; see Table 11. Over the course of the
program, the Fed would lend a total of $217.435 billion. As can be seen in Figure 12, peak
weekly lending and amount outstanding reached their apex on the week of Sepember 25, 2008
at $88.6 and $152.1 billion on October 2, 2008 respectively. The nine largest sellers of ABCP
are listed in Table 12. Funds
23
Table 11 AMLF buyers of ABCP, in billions
Parent Company Total AMLF
borrowing
Percent of
total
J.P. Morgan Chase $114.4 51.3%
State Street Bank and Trust Company 89.2 41.1
Bank of New York Mellon 12.9 5.9
Bank of America 1.6 0.7
Citigroup 1.4 0.7
Source: Federal Reserve
Figure 12 AMLF, weekly amounts lent and outstanding, in billions
Source: Federal Reserve
selling in excess of $10 billion comprised roughly 58 percent of overall ABCP sales. All loans
are said to have been repaid in full, with interest, in agreement with the terms of the facility. The
AMLF was closed on February 1, 2010.
0
20
40
60
80
100
120
140
160
Amountoutstanding,inbillions
Amountlent,inbillions
24
Table 12 Nine largest sellers of ABCP under AMLF program, in billions
Fund Family Seller Total AMLF
sales
Percent of
Total
Reserve Funds $19 8.9%
J.P. Morgan Chase 18 8.1
Dreyfus 17 7.6
Columbia Funds 15 6.9
Barclays 13 5.9
Wells Fargo 12 5.6
BlackRock 12 5.5
Federated 10 4.7
Morgan Stanley 10 4.4
All others 92.01 42.4
Source: Federal Reserve
Despite providing support to the MMMFs through the AMLF so as to prevent
redemption requests from having a disruptive effect on debt markets, MMMFs showed little
inclination to resume their purchases of commercial paper (CP). Uncertain about counterparty
credit risk and their own liquidity risk, MMMFs shifted their portfolios toward more secure
assets, such as U.S. Treasuries (Anderson and Gascon 2009). As a consequence of the “flight to
safety” by market participants, credit markets essentially “froze up,” stalling the flow of credit
to households and businesses. To address this disruption, the Fed announced the Commercial
Paper Funding Facility (CPFF) on October 7, 2008. This facility was authorized under Section
13(3) of the FRA and was designed to improve liquidity in CP markets. The program was
structured to operate through an SPV since the CPFF’s logistics fell outside the Fed’s traditional
operating framework. The SPV provided assistance by purchasing highly rated ABCP and
unsecured U.S. dollar-denominated CP of three month maturity from eligible issuers. To
manage credit risk the Fed attached fees to program participation, collecting $849 million from
program participants, according to the Fed’s website.
A total of 120 unique institutions took part in this facility. The top ten borrowers (each
borrowing in excess of $20 billion) account for 64.3 percent ($473.9 billion) of all borrowing—
see Table 13 and Figure 13. The cumulative total lent under the CPFF was $737.07 billion. Peak
lending occurred during the first week of operations at $144.59 billion, and the largest amount
outstanding occurred on January 22, 2009 at $348.176 billion; see Figure 14. The CPFF was
suspended on February 1, 2010 and all loans are said be paid in full under the terms and
conditions of the program.
25
Table 13 Top ten CPFF borrowers, in billions
Borrower ABCP Unsecured CP Issuer total Percent of
CPFF total
UBS (Switzerland) $0.0 $74.5 $74.5 10.1%
AIG 36.0 24.0 60.2 8.2
Dexia SA (Belgium) 0.0 53.5 53.5 7.3
Hudson Castle 53.3 0 53.3 7.2
BSN Holdings (United Kingdom) 42.8 0.0 42.8 5.8
The Liberty Hampshire Company 41.4 0 41.4 5.6
Barclays PLC (United Kingdom) 0.0 38.8 38.8 5.3
Royal Bank of Scotland Group
(United Kingdom)
24.8 13.7 38.5 5.2
Fortis Bank SA/NV 26.9 11.6 38.5 5.2
Citigroup 12.8 19.9 32.7 4.3
Source: Federal Reserve
Figure 13 CPFF borrowing by institution
Source: GAO
Despite the CPFF and AMLF being implemented to improve conditions in credit
markets, pervasive uncertainty resulted in rising credit standards. At the time, it was believed
that upwards of 70 percent of banks tightened standards (Federal Reserve 2009c, p. 8). Financial
innovation in the credit intermediation process over the 20 years preceding the crisis had
resulted in the development of an “originate and distribute” model in which pools of loans were
packaged by lenders and sold as fixed income products. The sale of securitized ABS products
UBS
10%
AIG
8%
Dexia
SA
7%
HudsonCastle
7%
BSNHoldings
6%
TheLiberty
Hampshire
Company
6%
BarclaysPLC
5%
RoyalBankof
ScotlandGroup
5%
FortisBankSA
5%
Citigroup
5%
Allothers
36%
26
allowed lenders to move long-term (and illiquid) loans off their balance sheets and, in the
process, collect immediate profits and funding with which to make new loans. To confront
gridlock in ABS markets, and to increase the flow of credit throughout the U.S. economy, the
Fed announced the creation of the Term Asset-Backed Securities Loan Facility (TALF) on
November 25, 2008. Operating similarly to the AMLF, the Fed provided nonrecourse loans to
eligible borrowers posting eligible collateral, but for terms of five years. Borrowers then would
act as an intermediary, using the TALF loans to purchase ABS. These ABS were required to
have received a credit rating in the highest investment-grade category by two approved ratings
agencies and would serve as collateral for the TALF loan. The ABS categories eligible for
issuance under the TALF included: auto loans, student loans, credit card loans, equipment loans,
“floor-plan” loans, insurance premium finance loans, small business loans fully guaranteed by
the U.S. Small Business Association, servicing advance receivables, and commercial mortgage
loans. Authorization to conduct the TALF was provided under Section 13(3) of the FRA.
Figure 14 CPFF weekly amounts lent and outstanding, in billions
Source: Federal Reserve
0
50
100
150
200
250
300
350
400
10/23/2008
11/23/2008
12/23/2008
1/23/2009
2/23/2009
3/23/2009
4/23/2009
5/23/2009
6/23/2009
7/23/2009
8/23/2009
9/23/2009
10/23/2009
11/23/2009
12/23/2009
1/23/2010
2/23/2010
3/23/2010
Amountoutstanding,inbillions
Amountlent,inbillions
27
Although the Fed terminated lending under the TALF on June 30, 2010, loans remain
outstanding under the program until March 30, 2015. The Fed loaned in total $71.09 billion
through this program. Significantly smaller in size than other emergency lending programs, the
TALF’s peak in terms of amount lent occurred the weeks beginning June 4, 2009 at $10.72
billion, and after suspending operations, the amount outstanding peaked at $48.19 billion on
March 18, 2010; see Figure 15. Of the total 177 borrowers, those borrowing over $2 billion
constituted 58 percent ($41.24 billion) of total borrowing; see Figure 16. The top five largest
borrowers are depicted in Table 14, and comprise 41.7 ($29.6) percent of total borrowing.
Figure 17 presents the allocation of TALF loans by asset category. As of November 10, 2011,
almost 15 percent of loans ($10.571billion) remain outstanding. No collateral has yet to be
surrendered due to default on payments.
Table 14 Top five TALF borrowers, in billions
Borrower Total
Morgan Stanley $9.3
PIMCO 7.3
CalPERS 5.4
Arrowpoint Capital 4.0
Angelo Gordon & Co. 3.7
Source: GAO
Figure 15 TALF weekly amounts lent and outstanding, in billions
Source: Federal Reserve
0
10
20
30
40
50
60
3/19/2009 3/19/2010 3/19/2011
Amountoutstanding,in
billions
Amountlent,inbillions
28
Figure 16 TALF borrowing by institution
Source: GAO and Federal Reserve
Stage Three: Purchases of Long-term Securities
The final stage of the Fed’s bailout is composed of the purchase of long-term securities in an
attempt to support the functioning of credit markets (Bernanke 2009). Policy actions associated
with this stage are the purchase of agency MBS and subsequent rounds of Quantitative Easing;
the latter of which, while unconventional, is well-known to monetary policy theory and in
practice, most noticeably by the example afforded by the Bank of Japan’s monetary policy
Figure 17 TALF lending by asset category, percentage and total, in billions
Source: Federal Reserve
Morgan
Stanley
13%
PIMCO
10%
CalPERS
8%
ArrowpointCapital
6%
AngeloGordon
andCo.
5%
Metropolitian
WestAsset
Management,LLC
4%
Belstar
Group
4%
WexfordCapital
4%
BlackRock
4%
Allothers
42%
Auto,12.79
Commercial
Mortgage,
12.07
CreditCard,
26.31
Equipment,
1.61
Floorplan,3.89
Premium
Finance,1.98
Servicing
Advances,1.31
SmallBusiness,
2.15
StudentLoan,
8.97
29
from the 1990s onward. Stage Three programs involve the “expansion of traditional open
market operations support to the functioning of credit markets through the purchase of long-
term securities for the Fed's portfolio” (Federal Reserve 2011b). Operations falling under this
stage consist of the purchase of two types of medium- and-long-term securities: agency MBS
and U.S. Treasury securities. As the purchase of Treasuries represents a weapon from the
monetary policy arsenal, and therefore is not associated with LOLR operations, we will consider
only the Fed’s purchase of MBS in this section.
The Agency Mortgage-Backed Securities (MBS) facility was authorized by Section 14
of the FRA. It was created to stabilize the price of MBS, as well as to “increase the availability
for credit for the purchase of houses, which in turn should support housing markets and foster
improved conditions in financial markets more generally” (Federal Reserve 2008b). As of July
2010, the Fed purchased some $1,850.14 billion in MBS via open market operations conducted
by the FRBNY. However, as the Fed was making purchases, it was simultaneously conducting
sales—with net MBS purchases by the Fed at $1,250 billion. Figure 18 indicates that the Fed’s
MBS holdings peaked at $1,128.67 billion on June 23, 2010. The highest weekly purchases
occurred for the week beginning April 12, 2009, when the Fed made gross purchases of $80.5
billion. All transactions were conducted with primary dealers for MBS of three maturities: 15,
20, and 30 years—with the purchase of 30-year MBS comprising 95 percent of total purchases.
Table 15 presents the top five sellers of MBS to the Fed. Figure 19 shows that the top 5 sellers
accounted for 61.0 percent ($1.145) of total MBS purchases. Of the 16 program participants, the
9 foreign primary dealers constituted over half (52 percent) or $964.53 trillion of MBS sellers.
This relationship is expressed in Figure 20.
Table 15 Top five sellers to MBS program, in billions
Seller Total
Deutsche Bank Securities $293.325
Credit Suisse 287.26
Morgan Stanley 205.71
Citigroup 184.95
Merrill Lynch 173.57
Source: Federal Reserve
30
Figure 18 Weekly MBS purchases and amounts outstanding, in billions
Source: Federal Reserve
Figure 19 Sales to MBS program by institution, in billions
0
200
400
600
800
1000
1200
12/31/2008 12/31/2009 12/31/2010
Amountheld,inbillions
Amountpurchased,inbillions
DeutscheBank
16%
CreditSuisse
15%
MorganStanley&
Co
11%
Merril
Lynch
10%
Citigroup
9%
GoldmanSachs&
Co.
9%
J.P.Morgan
8%
BarclaysCapital
7%
UBS
5%
BNPParibas
4%
Allothers
6%
31
Source: Federal Reserve
Figure 20 MBS percentages purchases by country
Source: Federal Reserve
SUMMARY
When all individual transactions are summed across all unconventional LOLR facilities, the Fed
spent a total of $29,616.4 billion dollars! Note this includes direct lending plus asset purchases.
Table 16 and Figure 21 depict the cumulative amounts for all facilities; any amount outstanding
as of November 10, 2011 is in parentheses below the total in Table 16. Three facilities—CBLS,
PDCF, and TAF—would overshadow all other unconventional LOLR programs, and make up
71.1 percent ($22,826.8 billion) of all assistance.
Germany
16%
Switzerland
20%
UnitedKingdom
10%
France
4%
Canada
0%
Japan
2%
UnitedStates
48%
32
Table 16 Cumulative facility totals, in billions
Facility Total Percent of
total
Term Auction Facility $3,818.41 12.89%
Central Bank Liquidity Swaps 10,057.4
(1.96)
33.96
Single Tranche Open Market Operation 855 2.89
Terms Securities Lending Facility and Term Options
Program
2,005.7 6.77
Bear Stearns Bridge Loan 12.9 0.04
Maiden Lane I 28.82
(12.98)
0.10
Primary Dealer Credit Facility 8,950.99 30.22
Asset-Backed Commercial Paper Money Market Mutual
Fund Liquidity Facility
217.45 0.73
Commercial Paper Funding Facility 737.07 2.49
Term Asset-Backed Securities Loan Facility 71.09
(10.57)
0.24
Agency Mortgage-Backed Security Purchase Program 1,850.14
(849.26)
6.25
AIG Revolving Credit Facility 140.316 0.47
AIG Securities Borrowing Facility 802.316 2.71
Maiden Lane II 19.5
(9.33)
0.07
Maiden Lane III 24.3
(18.15)
0.08
AIA/ ALICO 25 0.08
Totals $29,616.4 100.0%
Source: Federal Reserve
Figure 21 Facility percentage of bailout total
Source: Federal Reserve
The cumulative total for individual institutions provides even more support for the claim
that the Fed’s response to the crisis was truly a bailout (of unprecedented proportions) and was
TAF
13%
CBLS
34%
STOMO
3%
TSLF/TOP
7%
BearStearns
(Bridge
Loan,MLI)
<1%
PDCF
30%
AMLF
1%
CPFF
3%
TALF
<1%
MBS
6%
AIG(RCF,
SBF,MLII,
MLIII,
AIA/ALICO)
3%
33
targeted at the largest financial institutions in the world. If the CBLS are excluded, 83.9 percent
($16.41 trillion) of all assistance would be provided to only 14 institutions. Table 17 and Figure
22 display the degree to which a few Too Big To Fail institutions received the preponderance of
support from the Fed. We note in passing that the six largest foreign-based institutions would
receive 36 percent ($10.66 trillion) of the total bailout.
Table 17 14 largest participants (excluding CBLS), in billions
Participant Total Percentage of
total
Citigroup $2,654.0 13.6%
Merrill Lynch 2,429.4 12.4
Morgan Stanley 2,274.3 11.6
AIG 1,046.7 5.4
Barclays (UK) 1,030.1 5.3
Bank of America 1,017.7 5.2
BNP Paribas (France) 1,002.2 5.1
Goldman Sachs 995.2 5.1
Bear Stearns 975.5 5.0
Credit Suisse (Switzerland) 772.8 4.0
Deutsche Bank (Germany) 711.0 3.6
RBS (UK) 628.4 3.2
JP Morgan Chase 456.9 2.3
UBS (Switzerland) 425.5 2.2
All others 3,139.3 16.1
Totals $19,559.00 100%
Source: Federal Reserve
Figure 23 Total participation by institution, excluding CBLS, in billons
Source: Federal Reserve
UBSAG
(Switzerland)
2%
RBS
(UK)
3%
MorganStanley
12%
MerrillLynch
13%
JPMorgan
Chase
2%
GoldmanSachs
5%
DeutscheBank
AG(Germany)
4%
CreditSuisse
(Switzerland)
4%
Citigroup
14%
BNPParibas
(France)
5%
BearStearns
5%
Barclays(UK)
5%
BankofAmerica
5%
AIG
5%
Allothers
16%
34
CONCLUSION
The Global Financial Crisis of 2007-2009 is remarkable for a number of reasons. On one hand,
it represents the explosion of the idealistic vision of efficient financial markets in which
financial innovation and deregulation had conquered the eternal bugbear of financial instability,
and resulted in a golden age called the “Great Moderation.” On the other hand, it exposed the
lengths to which central banks worldwide—the Fed being perhaps the best example—would act
to save the existing financial order, helping to preserve especially the largest and most powerful
institutions. We will never know what might have happened had there not been such a strong
intervention. The best we can do is study the methods through which central banks prevented
what surely would have been financial Armageddon. This short paper makes a first attempt at
doing just that.
This is the first of what we intend to be a series of working papers on the Fed’s bailout.
In this one, we have focused on an accounting of the funds spent, by facility. We have also
tallied how much the largest institutions received. Finally, we have indicated where foreign
institutions have received substantial help, including both foreign central banks as well as
private banks. In subsequent papers we will provide more detail on some of the Fed’s actions,
and will also discuss implications concerning such matters as risks to the Fed and Treasury of
losses due to the Fed’s expenditures, as well as matters related to Congressional oversight and
accountability of the Fed.
35
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