Working Paper: NBER ID: w18304
Authors: Efraim Benmelech
Abstract: The U.S. Federal Reserve used the Term Auction Facility (TAF) to provide term funding to eligible depository institutions from December 2007 to March 2010. According to the Fed, the purpose of TAF was to inject term funds through a broader range of counterparties and against a broader range of collateral than open market operations. The overall goal of the TAF was to ensure that liquidity provisions could be disseminated efficiently even when the unsecured interbank markets were under stress. In this paper I use the TAF micro-level loan data and find that about 60 percent of TAF loans went to foreign banks that pledged asset-backed securities as collateral for these loans. The data and analysis illustrate the major role that foreign - in particular, European - banks currently play in the U.S. financial system and the resultant currency mismatch in their balance sheets. The data suggest that foreign banks had to borrow from the Federal Reserve Bank to meet their dollar-denominated liabilities.
Keywords: Term Auction Facility; Liquidity Provision; Foreign Banks; Financial Crisis
JEL Codes: E44; E52; E58; G01; G21; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| financial crisis (G01) | reliance on TAF loans (H81) |
| foreign banks' financial distress (F65) | nature of collateral used (G32) |
| foreign banks' need for liquidity (F65) | participation in TAF (F38) |
| currency mismatches (F31) | allocation of TAF loans to foreign banks (F35) |
| TAF loans (H81) | borrowing from Federal Reserve (E52) |