Thawing frozen capital markets and backdoor bailouts: Evidence from the Fed's liquidity programs |
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| Institution: | 1. Northeastern University, Boston, MA02186, USA;2. University of California,Riverside, CA92508, USA;3. Securities and Exchange Commission, 44 Montgomery Street, San Francisco, CA94104, USA;1. University of Rome Tor Vergata, Department of Economics and Finance, Via Columbia 2, Rome, Italy;2. University of Roma Tre, Department of Business Studies, via Silvio D’Amico 77, Rome, Italy;3. Middlesex University, Business School, The Burroughs Hendon, London NW4 4BT, United Kingdom;4. Bangor University, Bangor Business School, College Road, LL572DG Bangor, United Kingdom;1. School of Acccounting and Finance, University of Waterloo, 200 University Avenue West, Waterloo, ON, Canada N2L 3G1;2. School of Business, Hong Kong Baptist University, 34 Renfrew Road, Kowloon Tong, Kowloon, Hong Kong;3. College of Business, City University of Hong Kong, 83 Tat Chee Avenue, Kowloon, Hong Kong |
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| Abstract: | During the subprime crisis, the Federal Reserve introduced several emergency liquidity programs as supplements to the discount window (DW): TAF, PDCF, and TSLF. Using data on loans to large commercial banks and primary dealers, we find that the programs were used by relatively few institutions and thus provided limited relief to banks that relied on short-term debt markets. Although usage increased after Lehman's bankruptcy, most commercial banks avoided the DW and TAF. We also find that the programs were more often used by failed European banks than by healthy US banks, likely because these loans are expensive relative to private market funds. Our results also show that usage of PDCF and TSLF programs, while higher, was more often used by primary dealers in weaker financial position. |
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