Federal Reserve Bank

Federal Reserve Bank

Federal Reserve Bank

In the summer of 2007, the US and international financial market was facing a potential financial crisis, making the Federal Reserve in the US to be in a difficult situation. It was apparent that the banks and financial were to lose hundreds of billion dollar from the exposure to subprime mortgage market loan in the country.

The Federal Reserve undertook several measure to avoid the effects of the financial crisis from the beginning of 2007. Apart from the easing monetary policies by applying conventional tools, the central bank in the US eased its term by providing liquidity to other financial institutions.

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Fed expanded toolkit and reached beyond its traditional monetary policy instruments. Fed response and the implicit timing is an evolution of the risks as the crisis progressed. In the first stage, Fed emphasized on the importance of liquidity provision to the solvent institution, indicating that it views illiquidity more that the greater risk in the economy.

Reference
Acharya, V., Philippon, T., Richardson, M., & Roubini, N. (2009). The financial crisis of 2007‐ 2009: Causes and remedies. Financial markets, institutions & instruments, 18(2), 89-137.
Adrian, T. (2011). Changing Nature of Financial Intermediation

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