The actions which the formed committee for easing crisis credit, are based on three principles in the FEDs actions:
Liquidity provision.
Restoring suffering financial markets.
Aiding important financial institution.
Concerning the provision of liquidity, FED decided to increase money available for consumers who are in turn borrowers and investors. In 2008, Money Market Investor Funding Facility (MMIFF) aided the personal entity, they provided money by financing buying of asset funds which were being sold at a cheaper price than they are worth, enhancing withdrawals by consumers from financial institutions. MMIFF made it easier for individuals with cash in mutual money market funds to have access to their cash easily. Economy had been sabotaged by the financial quagmire rendering interbank market insecure and most of them being shut down ( Hördahl & King, 2008)
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Same year 2008 Commercial Paper Funding Facility (CPFF), increased their support to boost the economy by financing some categories of local paper. In that, they aided the buying of meticulously rated unsafe and asset-supported local paper from qualified distributers through the Federal core agents.
The Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF) ( Duygan et al, . 2013). In 2008, assisted mutual money market funds when its investors became paranoid about the quality of assets they had invested in the market. The investors decided to take their money; this necessitated the fund's agency to sell their security at money throwing price to meet the investors' withdrawals. AMLF helped the fund with a form of short-term lending money to avoid major loses to the institution.
They restored financial markets held in ransom by the crisis in the country financial institutions. FED reduced their rates to enhance much borrowing by this markets. FED had been termed as a last resort firm in the nation in situation where there was no option, as their rates were much higher than other money lending institutions ( Fleming,2012). The move taken by the FED stabilized the country's economy; the markets could have the fund at their disposal. FED is currently considered as a primary source of borrowing not secondary as before they reduced their rates.
Fed offered a great assistance to specific financial institutions which they termed as important. In 2008, FED helped the Bear Stearns which was under immense funding pressure and at a risk of failure of meeting the demand by its consumers. Initially Fed had wanted to lend the institution with money, but they regarded it as insufficient, to restore them to their starting level. Instead they then aided in the merger between JP Morgan and Bear Stearns which led to $29 billion transactions via stock swap value with JP Morgan contributing $1.5 billion.
In January 2009, the FED government made it clear to the public that guarantees, cash flow access, and starting income were in good and safe condition.they did this to reassure them of the significance of Merrill Lynch assets to the economy of the country. The Bank of America had taken over Merrill Lynch Company because of their bankruptcy which necessitated FED to intervene.
References
Fleming, M. J. (2012). Federal Reserve liquidity provision during the financial crisis of 2007–2009. Annu. Rev. Financ. Econ. , 4 (1), 161-177.
Hördahl, P., & King, M. R. (2008). Developments in repo markets during the financial turmoil.
Duygan ‐ Bump, B., Parkinson, P., Rosengren, E., Suarez, G. A., & Willen, P. (2013). How Effective Were the Federal Reserve Emergency Liquidity Facilities? Evidence from the Asset ‐ Backed Commercial Paper Money Market Mutual Fund Liquidity Facility. The Journal of Finance , 68 (2), 715-737.
