Federal Reserve response

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Credit and Liquidity Programs and the Balance Sheet

Crisis response
Fed's balance sheet
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
Collateral and rate setting
Risk management
Longer-term issues
Reports and other resources


The Federal Reserve's response to the crisis

The Federal Reserve has responded aggressively to the financial crisis since its emergence 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 has implemented a number of programs designed to support the liquidity of financial institutions and foster improved conditions in financial markets. These new programs have led to a significant change to the Federal Reserve's balance sheet.



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. Because bank funding markets are global in scope, the Federal Reserve has also approved bilateral currency swap agreements with 14 foreign central banks. These 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, the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, and the Money Market Investor Funding Facility fall into this category. In addition, the Federal Reserve will soon implement the Term Asset-Backed Securities Loan Facility. All of the programs are described in detail elsewhere on this website.

As a third set of instruments, the Federal Reserve has expanded its traditional tool of open market operations to support the functioning of credit markets through the purchase of longer-term securities for the Federal Reserve's portfolio. For example, on November 25, 2008, the Federal Reserve announced plans to purchase up to $100 billion in government-sponsored enterprise (GSE) debt and up to $500 billion in agency mortgage-backed securities.

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