Editing Federal Reserve (section)

=== Expired policy tools ===

==== Reserve requirements ====
An instrument of monetary policy adjustment historically employed by the Federal Reserve System was the fractional [[reserve requirement]], also known as the required reserve ratio.<ref>{{Harvnb|BoG|2005 | pp=30}}</ref> The required reserve ratio set the balance that the Federal Reserve System required a depository institution to hold in the Federal Reserve Banks.<ref name="BoG 2005 pp=27">{{Harvnb|BoG|2005 | pp=27}}</ref> The required reserve ratio was set by the board of governors of the Federal Reserve System.<ref>{{Harvnb|BoG|2005 | pp=31}}</ref> The reserve requirements have changed over time and some history of these changes is published by the Federal Reserve.<ref name="hist_resreq">{{Cite journal |last=Feinman |first=Joshua N. |date=June 1993 |title=Reserve Requirements: History, Current Practice, and Potential Reform |url=http://www.federalreserve.gov/monetarypolicy/0693lead.pdf |journal=[[Federal Reserve Bulletin]] |pages=569–589 |access-date=August 29, 2011}}</ref>

As a response to the [[2008 financial crisis]], the Federal Reserve started making interest payments on depository institutions' required and excess reserve balances. The payment of interest on excess reserves gave the central bank greater opportunity to address credit market conditions while maintaining the federal funds rate close to the target rate set by the FOMC.<ref>{{Cite web |date=October 6, 2008 |title=Board announces that it will begin to pay interest on depository institutions required and excess reserve balances |url=http://www.federalreserve.gov/monetarypolicy/20081006a.htm |access-date=August 29, 2011 |publisher=Federal Reserve}}</ref> The reserve requirement did not play a significant role in the post-2008 interest-on-excess-reserves regime,<ref name="fed-zero-rr-pr">{{Cite web |date=March 15, 2020 |title=Federal Reserve Actions to Support the Flow of Credit to Households and Businesses |url=https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315b.htm |access-date=May 10, 2020 |website=Federal Reserve System}}</ref> and in March 2020, the reserve ratio was set to zero for all banks, which meant that no bank was required to hold any reserves, and hence the reserve requirement effectively ceased to exist, though the legal framework exists for it to be reinstated at any time.<ref name="fed-zero-rr"/><ref>Federal Reserve Act, Section 19, 12 U.S.C. § 461</ref>

==== Temporary policy tools during the 2008 financial crisis ====
In order to address problems related to the [[subprime mortgage crisis]] and [[United States housing bubble]], several new tools were created. The first new tool, called the [[Term auction facility]], was added on December 12, 2007. It was announced as a temporary tool,<ref name="taffaq"/> but remained in place for a prolonged period of time.<ref>{{Cite web |date=December 21, 2007 |title=Federal Reserve intends to continue term TAF auctions as necessary |url=http://www.federalreserve.gov/newsevents/press/monetary/20071221b.htm |access-date=August 29, 2011 |publisher=Federalreserve.gov}}</ref> Creation of the second new tool, called the [[Term Securities Lending Facility]], was announced on March 11, 2008.<ref name="tslfannounce">{{Cite web |date=March 11, 2008 |title=Announcement of the creation of the Term Securities Lending Facility |url=http://federalreserve.gov/newsevents/press/monetary/20080311a.htm |access-date=August 29, 2011 |publisher=Federal Reserve}}</ref> The main difference between these two facilities was that the Term auction Facility was used to inject cash into the banking system whereas the Term securities Lending Facility was used to inject [[treasury securities]] into the banking system.<ref>{{Cite news |date=March 12, 2008 |title=Fed Seeks to Limit Slump by Taking Mortgage Debt |publisher=bloomberg.com |url=https://www.bloomberg.com/apps/news?pid=20601103&sid=a6aFI7RKVhEA&refer=news}} "The step goes beyond past initiatives because the Fed can now inject liquidity without flooding the banking system with cash...Unlike the newest tool, the past steps added cash to the banking system, which affects the Fed's benchmark interest rate...By contrast, the TSLF injects liquidity by lending Treasuries, which doesn't affect the federal funds rate. That leaves the Fed free to address the mortgage crisis directly without concern about adding more cash to the system than it wants"</ref> Creation of the third tool, called the [[Primary Dealer Credit Facility]] (PDCF), was announced on March 16, 2008.<ref>{{Cite web |date=March 16, 2008 |title=Federal Reserve Announces Establishment of Primary Dealer Credit Facility – Federal Reserve Bank of New York |url=http://www.newyorkfed.org/newsevents/news/markets/2008/rp080316.html |access-date=August 29, 2011 |publisher=Newyorkfed.org}}</ref> The PDCF was a fundamental change in Federal Reserve policy because it enabled the Fed to lend directly to [[primary dealer]]s, which was previously against Fed policy.<ref>{{Cite news |last=Lanman |first=Scott |date=March 20, 2008 |title=Fed Says Securities Firms Borrow $28.8 Bln With New Financing |publisher=Bloomberg.com |url=https://www.bloomberg.com/apps/news?pid=20601068&sid=a7VHAq.o6kwU |access-date=August 29, 2011}}</ref> The differences between these three facilities was described by the Federal Reserve:<ref name="pdcffaq">{{Cite web |date=February 3, 2009 |title=Primary Dealer Credit Facility: Frequently Asked Questions – Federal Reserve Bank of New York |url=http://www.newyorkfed.org/markets/pdcf_faq.html |access-date=August 29, 2011 |publisher=Newyorkfed.org}}</ref>

{{Blockquote|The Term  auction Facility program offers term funding to depository institutions via a bi-weekly auction, for fixed amounts of credit. The Term  securities Lending Facility will be an auction for a fixed amount of lending of Treasury general collateral in exchange for OMO-eligible and AAA/Aaa rated private-label residential mortgage-backed securities. The Primary Dealer Credit Facility now allows eligible primary dealers to borrow at the existing Discount Rate for up to 120 days.}}

Some measures taken by the Federal Reserve to address the [[2008 financial crisis]] had not been used since the [[Great Depression]].<ref>{{Cite news |date=March 17, 2008 |title=Fed Announces Emergency Steps to Ease Credit Crisis – Economy |publisher=[[CNBC]] |agency=Reuters |url=https://www.cnbc.com/2008/03/17/fed-announces-emergency-steps-to-ease-credit-crisis.html |access-date=August 29, 2011}}</ref>

==== Term auction facility ====
{{Further|Term auction facility}}

The Term auction Facility was a program in which the Federal Reserve auctioned term funds to depository institutions.<ref name="taffaq">{{Cite web |date=January 12, 2009 |title=FRB: Temporary Auction Facility FAQ |url=http://www.federalreserve.gov/monetarypolicy/taffaq.htm |access-date=August 29, 2011 |publisher=Federalreserve.gov}}</ref> The creation of this facility was announced by the Federal Reserve on December 12, 2007, and was done in conjunction with the [[Bank of Canada]], the [[Bank of England]], the [[European Central Bank]], and the [[Swiss National Bank]] to address elevated pressures in short-term funding markets.<ref name="taf">{{Cite news |date=December 12, 2007 |title=Announcement of the creation of the Term Auction Facility – FRB: Press Release – Federal Reserve and other central banks announce measures designed to address elevated pressures in short-term funding markets |publisher=federalreserve.gov |url=http://www.federalreserve.gov/newsevents/press/monetary/20071212a.htm}}</ref> The reason it was created was that banks were not lending funds to one another and banks in need of funds were refusing to go to the discount window. Banks were not lending money to each other because there was a fear that the loans would not be paid back. Banks refused to go to the discount window because it was usually associated with the stigma of bank failure.<ref>{{Cite news |date=February 18, 2008 |title=US banks borrow $50bn via new Fed facility |work=Financial Times |url=http://www.ft.com/cms/s/66db756a-de5d-11dc-9de3-0000779fd2ac.html |archive-url=https://ghostarchive.org/archive/20221210/http://www.ft.com/cms/s/66db756a-de5d-11dc-9de3-0000779fd2ac.html |archive-date=December 10, 2022 |url-access=subscription |quote=Before its introduction, banks either had to raise money in the open market or use the so-called "discount window" for emergencies. However, last year many banks refused to use the discount window, even though they found it hard to raise funds in the market, because it was associated with the stigma of bank failure}}</ref><ref>{{Cite news |date=January 4, 2008 |title=Fed Boosts Next Two Special Auctions to $30 Billion |publisher=Bloomberg |url=https://www.bloomberg.com/apps/news?pid=20601103&refer=news&sid=aBPbErlft9cI |quote=The Board of Governors of the Federal Reserve System established the temporary Term Auction Facility, dubbed TAF, in December to provide cash after interest-rate cuts failed to break banks' reluctance to lend amid concern about losses related to subprime mortgage securities. The program will make funding from the Fed available beyond the 20 authorized primary dealers that trade with the central bank}}</ref><ref>{{Cite news |date=December 13, 2007 |title=A dirty job, but someone has to do it |work=economist.com |url=http://www.economist.com/displaystory.cfm?story_id=10286586 |access-date=August 29, 2011 |quote=The Fed's discount window, for instance, through which it lends direct to banks, has barely been approached, despite the soaring spreads in the interbank market. The quarter-point cuts in its federal funds rate and discount rate on December 11 were followed by a steep sell-off in the stockmarket...The hope is that by extending the maturity of central-bank money, broadening the range of collateral against which banks can borrow and shifting from direct lending to an auction, the central bankers will bring down spreads in the one- and three-month [[money market]]s. There will be no net addition of liquidity. What the central bankers add at longer-term maturities, they will take out in the overnight market. But there are risks. The first is that, for all the fanfare, the central banks' plan will make little difference. After all, it does nothing to remove the fundamental reason why investors are worried about lending to banks. This is the uncertainty about potential losses from subprime mortgages and the products based on them, and – given that uncertainty – the banks' own desire to hoard capital against the chance that they will have to strengthen their balance sheets.}}</ref><ref>{{Cite news |date=December 13, 2007 |title=Unclogging the system |work=economist.com |url=http://www.economist.com/daily/news/displaystory.cfm?story_id=10278482&top_story=1 |access-date=August 29, 2011}}</ref> Under the Term auction Facility, the identity of the banks in need of funds was protected in order to avoid the stigma of bank failure.<ref name="mwtaf">{{Cite web |last=Robb |first=Greg |date=December 12, 2007 |title=Fed, top central banks to flood markets with cash |url=http://www.marketwatch.com/news/story/fed-top-central-banks-flood/story.aspx?guid=%7b6FAFC482-F8E4-4F23-A021-52DC7DE8938C%7d&print=true&dist=printTop |access-date=August 29, 2011 |publisher=Marketwatch.com}}</ref> [[Central bank liquidity swap|Foreign exchange swap lines]] with the [[European Central Bank]] and [[Swiss National Bank]] were opened so the banks in Europe could have access to [[U.S. dollar]]s.<ref name="mwtaf"/> The final Term Auction Facility auction was carried out on March 8, 2010.<ref>{{cite web |title=Federal Reserve Board – Term Auction Facility |url=https://www.federalreserve.gov/monetarypolicy/taf.htm |website=Board of Governors of the Federal Reserve System |access-date=August 11, 2023 |language=en |date=November 24, 2015}}</ref>

==== Term securities lending facility ====
The Term securities Lending Facility was a 28-day facility that offered Treasury general collateral to the Federal Reserve Bank of New York's primary dealers in exchange for other program-eligible collateral. It was intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally.<ref name="tslffaq">{{Cite web |title=Term Securities Lending Facility: Frequently Asked Questions |url=http://www.newyorkfed.org/markets/tslf_faq.html |access-date=December 6, 2014 |publisher=Newyorkfed.org}}</ref> Like the Term auction Facility, the TSLF was done in conjunction with the [[Bank of Canada]], the [[Bank of England]], the [[European Central Bank]], and the [[Swiss National Bank]]. The resource allowed dealers to switch debt that was less liquid for U.S. government securities that were easily tradable. The currency swap lines with the [[European Central Bank]] and [[Swiss National Bank]] were increased. The TSLF was closed on February 1, 2010.<ref>{{cite web |title=Federal Reserve Board – Term Securities Lending Facility |url=https://www.federalreserve.gov/monetarypolicy/tslf.htm |website=Board of Governors of the Federal Reserve System |access-date=August 11, 2023 |language=en}}</ref>

==== Primary dealer credit facility ====
The Primary Dealer Credit Facility (PDCF) was an overnight loan facility that provided funding to primary dealers in exchange for a specified range of eligible collateral and was intended to foster the functioning of financial markets more generally.<ref name=pdcffaq/> The PDCF established in 2008 was closed on February 1, 2010, alongside other crisis-era facilities.<ref>{{Cite news |title=Primary Dealer Credit Facility |url=https://www.federalreserve.gov/monetarypolicy/pdcf.htm |archive-url=http://web.archive.org/web/20250315083542/https://www.federalreserve.gov/monetarypolicy/pdcf.htm |archive-date=2025-03-15 |access-date=2025-04-20 |language=en}}</ref> A new PDCF was introduced in March 2020 in response to COVID-19-related market disruptions, and that facility ceased extending credit in 2021.<ref>{{cite web |title=Federal Reserve Board – Primary Dealer Credit Facility |url=https://www.federalreserve.gov/monetarypolicy/pdcf.htm |website=Board of Governors of the Federal Reserve System |access-date=August 11, 2023 |language=en}}</ref>

==== Asset Backed Commercial Paper Money Market Mutual Fund Liquidity Facility ====
The Asset Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (ABCPMMMFLF) was also called the AMLF. The Facility began operations on September 22, 2008, and was closed on February 1, 2010.<ref>{{Cite web |title=Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility |url=http://www.federalreserve.gov/monetarypolicy/abcpmmmf.htm |access-date=May 27, 2010 |website=Board of Governors of the Federal Reserve System}}</ref>

All U.S. depository institutions, bank holding companies (parent companies or U.S. broker-dealer affiliates), or U.S. branches and agencies of foreign banks were eligible to borrow under this facility pursuant to the discretion of the FRBB.

Collateral eligible for pledge under the Facility was required to meet the following criteria:
* was purchased by Borrower on or after September 19, 2008, from a registered investment company that held itself out as a money market mutual fund;
* was purchased by Borrower at the Fund's acquisition cost as adjusted for amortization of premium or accretion of discount on the ABCP through the date of its purchase by Borrower;
* was rated at the time pledged to FRBB, not lower than A1, F1, or P1 by at least two major rating agencies or, if rated by only one major rating agency, the ABCP must have been rated within the top rating category by that agency;
* was issued by an entity organized under the laws of the United States or a political subdivision thereof under a program that was in existence on September 18, 2008; and
* had stated maturity that did not exceed 120 days if the Borrower was a bank or 270 days for non-bank Borrowers.

==== Commercial Paper Funding Facility ====
On October 7, 2008, the Federal Reserve further expanded the collateral it would loan against to include commercial paper using the [[Commercial Paper Funding Facility]] (CPFF). The action made the Fed a crucial source of credit for non-financial businesses in addition to commercial banks and investment firms. Fed officials said they would buy as much of the debt as necessary to get the market functioning again. They refused to say how much that might be, but they noted that around $1.3 trillion worth of commercial paper would qualify. There was $1.61 trillion in outstanding commercial paper, seasonally adjusted, on the market {{As of|2008|October|1|lc=y}}, according to the most recent data from the Fed. That was down from $1.70 trillion in the previous week. Since the summer of 2007, the market had shrunk from more than $2.2 trillion.<ref>{{Cite web |title=Yahoo Finance – Stock Market Live, Quotes, Business & Finance News |url=https://finance.yahoo.com |archive-url=https://web.archive.org/web/20081216044105/http://biz.yahoo.com/ap/081007/financial_meltdown.html |archive-date=December 16, 2008 |website=finance.yahoo.com}}</ref><ref>{{Cite web |title=Yahoo Finance – Stock Market Live, Quotes, Business & Finance News |url=http://biz.yahoo.com/ap/081007/financial_meltdown.html |archive-url=https://web.archive.org/web/20151015224731/http://biz.yahoo.com/ap/081007/financial_meltdown.html |archive-date=October 15, 2015}}</ref> This program lent out a total $738 billion before it was closed. Forty-five out of 81 of the companies participating in this program were foreign firms. Research shows that [[Troubled Asset Relief Program]] (TARP) recipients were twice as likely to participate in the program than other commercial paper issuers who did not take advantage of the TARP bailout. The Fed incurred no losses from the CPFF.<ref>{{Cite SSRN |title=Does Receiving TARP Funds Make it Easier to Roll Your Commercial Paper Onto the Fed? |last=Wilson |first=Linus |last2=Wu |first2=Yan |date=August 22, 2011 |ssrn=1911454}}</ref>

In response to the economic disruptions caused by the COVID-19 pandemic, the Federal Reserve reintroduced the Commercial Paper Funding Facility (CPFF) on March 17, 2020, to support the flow of credit to households and businesses by purchasing eligible commercial paper.<ref>{{Cite news |title=Federal Reserve Board announces establishment of a Commercial Paper Funding Facility (CPFF) to support the flow of credit to households and businesses |url=https://www.federalreserve.gov/newsevents/pressreleases/monetary20200317a.htm |archive-url=http://web.archive.org/web/20250323074335/https://www.federalreserve.gov/newsevents/pressreleases/monetary20200317a.htm |archive-date=2025-03-23 |access-date=2025-04-20 |work=Board of Governors of the Federal Reserve System |language=en}}</ref> The CPFF was modeled after the 2008 crisis-era facility and aimed to stabilize the commercial paper market.<ref name="Commercial Paper Funding Facility">{{Cite news |title=Commercial Paper Funding Facility |url=https://www.federalreserve.gov/monetarypolicy/cpff.htm |archive-url=http://web.archive.org/web/20250410221418/https://www.federalreserve.gov/monetarypolicy/cpff.htm |archive-date=2025-04-10 |access-date=2025-04-20 |language=en}}</ref> The facility ceased operations on March 31, 2021, and is not in place as of April 2025.<ref name="Commercial Paper Funding Facility"/>

==== Term Asset-Backed Security Loan Facility ====
The [[Term Asset-Backed Securities Loan Facility]] (TALF) was a temporary program announced on November 25, 2008, and launched in March 2009 by the Federal Reserve in collaboration with the [[United States Department of the Treasury|U.S. Treasury]] to stimulate consumer and business lending. It provided non-recourse loans to investors to purchase [[Asset-backed security|asset-backed securities]] (ABS), such as [[Car finance|auto loans]], [[student loan]]s, and credit card receivables, aiming to enhance liquidity in these markets.<ref>{{Cite news |title=Federal Reserve announces the creation of the Term Asset-Backed Securities Loan Facility (TALF) |url=https://www.federalreserve.gov/newsevents/pressreleases/monetary20081125a.htm |archive-url=http://web.archive.org/web/20250317030219/https://www.federalreserve.gov/newsevents/pressreleases/monetary20081125a.htm |archive-date=2025-03-17 |access-date=2025-04-20 |work=Board of Governors of the Federal Reserve System |language=en}}</ref> The facility ceased issuing new loans in June 2010 and was fully wound down by 2015.[2] As a significant tool during the 2008 financial crisis, TALF focused on ABS markets rather than direct banking system liquidity, distinguishing it from other crisis-era facilities.<ref>{{Cite news |title=Term Asset-Backed Securities Loan Facility |url=https://www.federalreserve.gov/monetarypolicy/talf.htm |archive-url=http://web.archive.org/web/20250408111946/https://www.federalreserve.gov/monetarypolicy/talf.htm |archive-date=2025-04-08 |access-date=2025-04-20 |language=en}}</ref>