This story appeared in Bank Digest.
“The Commercial Paper Funding Facility illustrates how the Federal Reserve, as the lender of last resort in times of extreme market stress, directly assisted the broader functioning of financial markets beyond its traditional narrow focus on depository institutions,” according to New York Federal Reserve Bank Vice President Tobias Adrian and Research Officer Ernst Schaumburg. The authors examine the Commercial Paper Funding Facility as part of a series detailing the steps taken by the Fed in its role as “lender of last resort” during the 2007-2009 financial crisis. According to the post, at the height of the crisis, financial intermediation activities had virtually collapsed, and the Fed responded by creating liquidity facilities authorized under Section 13(3) of the Federal Reserve Act to address the “unusual and exigent circumstances.” These facilities provided last-resort lending options in strained markets to prevent stress in the financial sector from spilling over onto real economic activity, the authors note.
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