The Federal Reserve's Financial Crisis Response B: Lending & Credit Programs for Primary Dealers

Abstract

Beginning in the summer 2007 the Federal Reserve (the Fed) deployed numerous conventional and innovative programs to address the credit crisis occurring in the interbank lending markets that was beginning to affect the broader financial markets and threaten the economy at large. Two of those programs, the Term Securities Lending Facility (TSLF) and the Primary Dealer Credit Facility (PDCF) were aimed at providing liquidity to primary dealers and required the Fed to rely on its authority under Section 13(3) of the Federal Reserve Act. Section 13(3) is a Depression Era amendment that permits the Fed expanded powers in “unusual and exigent” circumstances, which it had not invoked in 76 years. We discuss the TSLF and the PDCF and the impact that these programs had on the Fed’s efforts to combat the brewing crisis, to provide much needed liquidity to the primary dealers, and to help revive the interbank lending markets.