Day 1: Responding to the Global Financial Crisis

In the early stages of the crisis, the Federal Reserve acted as a lender of last resort to stabilize the financial system, initially innovating its traditional practices and later invoking emergency authorities to expand lending to more counterparties and more collateral. What problems were they trying to fix? What were the key design decisions? What constraints did they face? How successful were these efforts?

At the worst of the financial crisis, the solvency of major banking institutions came into serious question. The Treasury, the Federal Reserve, FDIC, and other regulators had to determine how to keep the financial system functioning. What approaches did they consider, and what approaches were considered and discarded? What were the key decision points in guaranteeing liabilities of the banking system, injecting capital, etc.? What worked well, and what didn’t?

Questions about solvency extended beyond the banks to all sorts of financial firms, including securities firms and AIG. How did authorities decide that the failure of these financial firms would cause material damage to the functioning of the financial system and economy? What tools did they consider and what tools did they use to prevent investor runs and disruptive failures? How did they weigh the consequences of potential bankruptcy of the auto companies in a fragile economy?

Housing was at the root of the financial crisis. The unwinding of the house price bubble, record-high mortgage debt, and low risk premiums on mortgage securities had a massive depressive effect on the financial system and economy. What was done to support homeowners and the mortgage market? What was considered and rejected? Which tools proved most effective? How was the decision to put Fannie Mae and Freddie Mac into conservatorship made?

Monetary and fiscal policies, both in the United States and abroad, were used aggressively to offset the contractionary effects on the macro economy of the severe stresses in financial and credit markets. How did policymakers calibrate these efforts? How did U.S. policymakers coordinate with foreign counterparts? How well were these efforts communicated? What were the constraints? How well did all this work?

Policies became more aggressive as the crisis intensified, starting with the provision of liquidity, to resolution, guarantees, and capital when solvency was in question. After ten years, what is the empirical evidence on the effects of the policies? What are the major criticisms and shortcomings? What lessons can we draw from the papers commissioned for this project that may prove useful for future crisis fighters?