The Term Auction Facility effect on liquidity risk exposure
Stefano Puddu, Andreas Wälchli 12 December 2012
Did the Federal Reserve act as ‘lender of last resort’ during the worst of the crisis? This column contributes to the current debate on the appropriateness and effectiveness of non-standard measures that have been taken by the Fed. Quantitatively measuring the effect of the Term Auction Facility on participating banks’ liquidity risk, it seems that, because the Term Auction Facility programme provided banks with enough time to adjust exposures on their balance sheets, the Fed did act as ‘lender of last resort’.
As the interbank credit market was under serious stress at the end of 2007, the Federal Reserve launched the Term Auction Facility (TAF) with the aim of injecting liquidity into the interbank market. Cecchetti (2007) explains that banks were reluctant to lend to other banks, mainly because of uncertainty about the asset quality on the balance sheets of the potential borrowers. Between December 2007 and March 2010, the Fed auctioned a total of $3.81 trillion collateralised funds, with maturities of 28 or 84 days.
subprime crisis, liquidity risk, global crisis, term auction facility
Systemic liquidity risk: A European approach
Enrico Perotti 25 October 2011
How should financial regulators address problems stemming from liquidity risk? This column argues that the liquidity coverage and net funding ratios proposed for Basel III are economically and politically impractical. It recommends using those ratios as long-term targets while imposing ‘prudential risk surcharges’ on deviations from the targets.
The repeated bursts of financial distress in Europe in 2010-11 reflect vulnerabilities built up in the previous decade and are germane to the roots of the credit crisis.
Financial markets International finance
liquidity risk, Basel, hot money
A consensus view on liquidity risk
Viral Acharya, Arvind Krishnamurthy, Enrico Perotti 14 September 2011
Liquidity risk – which was at the heart of the September 2008 financial meltdown and explains regulatory concerns about a Greek default today – remains an open issue in financial regulatory reform. This column presents a consensus view of several leading academics on what more needs to be done to close this regulatory gap.
On 15 April 2011 a joint IMF-Financial Stability Board workshop gathered senior policymakers and academics in Washington to review the open issue of systemic liquidity risk. Some participating academics agreed to underwrite this common statement, in the belief that this regulatory gap, though intellectually well-recognised, still requires concrete attention.
Global crisis International finance
financial regulation, liquidity risk
Liquidity risk and the current crisis
Lasse Heje Pedersen 15 November 2008
What is liquidity? Why is it at the heart of the crisis? How can we fix it? This column explains it all in terms any trained economist can understand.
What is liquidity risk and how can it help us understand the current crisis? How do we solve the crisis - and which measures will only hurt?
Here I provide some answers. The column is based on my 20 October 2008 talk at the International Monetary Fund and the Federal Reserve Board. To see the slides with lots of figures and graphs, click here.
financial crisis, liquidity risk