One Pager No.40 04 September 2013

The Fed Rates that Resuscitated Wall Street

by Nicola Matthews

Nicola Matthews, University of Missouri–Kansas City, presents the main findings of her research on the Fed’s lending practices following the global financial crisis of 2008. Applying Walter Bagehot’s principles, she finds that the Fed departed from the traditional lender-of-last-resort function of a central bank by lending to insolvent banks without good collateral–and below penalty rates. Most of the Fed’s emergency facilities lent at rates that were, on average, at or below market rates, with the big banks the primary beneficiaries. The Fed went beyond aiding markets to effectively making markets. Reform, Matthews concludes, is the only solution.

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Monetary Policy and Financial Structure

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The Fed Rates that Resuscitated Wall Street

Research Topics

Associated Programs

Related publications

Euro Interest Rate Swap Yields: A GARCH Analysis

Unconventional Monetary Policy or Automatic Stabilizers?

Can It Be Prevented This Time?

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