As funding markets tightened in 2007, banks became reluctant to lend to each other for more than overnight. The Federal Reserve created the Term Auction Facility (TAF) to auction term (multi-week) loans to depository institutions against collateral, aiming to reduce the stigma of borrowing at the discount window and improve short-term liquidity.
To relieve stress in global dollar funding markets, the Fed expanded and extended reciprocal currency swap arrangements with other central banks. These swaps allowed foreign central banks to provide U.S. dollar liquidity to institutions in their jurisdictions, helping reduce spillovers into U.S. markets.
The Fed created the Term Securities Lending Facility to lend Treasury securities to primary dealers for about a month in exchange for less-liquid collateral. This aimed to ease pressures in secured funding markets (such as repurchase agreements, or “repo” markets) by improving dealers’ access to high-quality collateral.
After severe strain around Bear Stearns, the Fed authorized the Primary Dealer Credit Facility to provide overnight loans to primary dealers against eligible collateral. This was a major step beyond traditional discount-window lending, intended to stabilize dealer funding and support market functioning.
Under emergency authority in section 13(3) of the Federal Reserve Act, the New York Fed extended credit to Maiden Lane LLC. The entity was formed to acquire and manage certain assets linked to Bear Stearns, aiming to reduce immediate market disruption while allowing assets to be worked out over time.
Following heavy withdrawals from money market mutual funds, the Fed introduced the AMLF to support liquidity in the asset-backed commercial paper (ABCP) market. The facility made nonrecourse loans to eligible institutions so they could buy ABCP from money funds, reducing “fire sales” of short-term assets.
As the commercial paper market weakened, the Fed authorized the CPFF to act as a liquidity backstop for U.S. issuers of commercial paper. By financing purchases of highly rated 3‑month commercial paper through a special purpose vehicle, the program aimed to keep short-term business funding available.
The Fed announced the MMIFF to support a private-sector effort to provide liquidity to money market investors. The program was designed to help finance purchases of high-quality, short-maturity money market instruments, though it ultimately saw no lending as conditions improved and market solutions emerged.
The Fed announced it would purchase up to $100 billion in agency debt and up to $500 billion in agency mortgage-backed securities (MBS). These “large-scale asset purchases” were an unconventional tool aimed at lowering longer-term borrowing costs and supporting mortgage and credit markets when policy rates were already near zero.
The Fed announced TALF to restart markets for asset-backed securities (ABS) tied to consumer and small-business credit (such as auto and student loans). TALF offered nonrecourse loans against eligible high-quality ABS collateral, aiming to reduce borrowing costs and restore credit flows to households and small businesses.
The New York Fed began extending credit to Maiden Lane III LLC under section 13(3) authority. The entity was formed to purchase multi-sector CDOs tied to AIG credit default swap obligations, with the goal of stabilizing markets and limiting broader disruption during the crisis.
The FOMC expanded asset purchases to a total of $1.25 trillion in agency MBS, $200 billion in agency debt, and added up to $300 billion in longer-term Treasury securities. This broadened the Fed’s unconventional approach from targeted mortgage support to wider efforts to push down longer-term interest rates.
To support commercial real estate financing, the Fed announced that certain commercial mortgage-backed securities (CMBS) would become eligible TALF collateral. This change aimed to address a market that had largely stalled and to reduce the risk of defaults on economically viable commercial properties.
With financial market functioning improving, the Fed closed several crisis-era liquidity facilities: AMLF, CPFF, PDCF, and TSLF. The closures marked a shift away from emergency lending toward more normal market functioning, while the Fed’s large securities holdings continued to shape financial conditions.
The Fed conducted the final TAF auction, offering term credit to eligible banks. The last credit extended under this auction matured on April 8, 2010, closing out one of the Fed’s largest early-crisis liquidity tools.
As dollar funding strains re-emerged during the European sovereign debt stress, the Fed and other central banks re-established temporary U.S. dollar liquidity swaps. These arrangements again enabled foreign central banks to offer dollar funding to institutions in their jurisdictions at fixed rates and full allotment.
TALF ended new lending after roughly 15 months of operations, reflecting improved conditions in many securitization markets. The program’s closure marked a partial exit from emergency credit-market support, even as the Fed continued to manage a much larger balance sheet than before the crisis.
With the recovery still weak, the FOMC directed the New York Fed to purchase an additional $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. This second round of large-scale asset purchases (often called QE2) sought to add monetary accommodation by lowering longer-term rates.
The FOMC directed the Desk to buy $400 billion of longer-maturity Treasury securities and sell an equal amount of shorter-maturity Treasuries by the end of June 2012. The goal was to put downward pressure on longer-term interest rates without expanding the total size of the Fed’s securities holdings.
To address renewed global funding stress, the Fed and several other major central banks announced coordinated steps to enhance swap lines. The Fed reduced the cost of dollar swaps and extended the arrangements through February 1, 2013, encouraging usage when private dollar funding became strained.
By the end of June 2012, the $400 billion Maturity Extension Program was completed, reflecting a shift from acute crisis firefighting toward longer-run support for recovery. By this point, many emergency lending facilities created in 2007–2008 were closed, leaving large-scale asset holdings and swap-line backstops as key unconventional tools still shaping policy and market expectations.
Emergency lending facilities and unconventional tools (2007-2012)