Ellen Corely Research Database
One-Pager | No. 23
December 12, 2011
L. Randall Wray
Senior Scholar, Levy Economics Institute
Professor of Economics, University of Missouri–Kansas City
There have been widely varying estimates of the total funding provided by the Federal Reserve to rescue the financial system during the 2007–09 crisis — from the Fed’s own claim of $1.2 trillion to Bloomberg’s $7.7 trillion (for the biggest banks alone) and the GAO’s $16 trillion.
As part of a Ford Foundation–funded project I direct — “A Research and Policy Dialogue Project on Improving Governance of the Government Safety Net in Financial Crisis” — Nicola Matthews and James Felkerson conducted the most thorough examination to date of the raw Fed data obtained through lawsuits and congressional mandates.
The headline finding, published in Felkerson’s new Levy Institute working paper (the first in a series), is that between January 2007 and November 2011 the Federal Reserve committed more than $29 trillion in loans and asset purchases to prop up the financial system.
Beneficiaries included:
Matthews and Felkerson used three distinct methods to quantify the Fed’s commitments:
| Measure | Purpose | Result (across all facilities) |
|---|---|---|
| Peak outstanding at any one time | Measures maximum risk of loss to the Fed | ~$1–2 trillion (close to Fed’s own estimate) |
| Peak weekly/monthly flow | Captures intensity of distress in the worst periods | Several trillion during crisis peaks |
| Cumulative total (2007–2011) | Best gauge of the overall scale of the rescue effort | $29.616 trillion |
Created March 16, 2008, in response to Bear Stearns collapse
| Measure | Amount | Date/Notes |
|---|---|---|
| Peak outstanding | $156.57 billion | Oct 1, 2008 |
| Peak weekly lending | $728.64 billion | Oct 1, 2008 |
| Cumulative (entire program) | $8.951 trillion (1,376 loans) | Mostly to just 5 banks |
The vast majority of the $9 trillion in cumulative PDCF borrowing went to Merrill Lynch, Citigroup, Morgan Stanley, Bear Stearns, and Bank of America — institutions that were either absorbed, nearly failed, or remain troubled.
When all transactions across all crisis facilities are summed, the Fed’s total commitment reaches $29,616.4 billion.
The 2007–09 crisis triggered an unprecedented response by the Federal Reserve in its role as lender of last resort. This research provides the most detailed descriptive account yet of what the Fed actually did. The next phase of the project will evaluate the Fed’s approach and draw policy lessons for future crises — an unfortunately realistic possibility.
Full working paper (WP 698):
www.levyinstitute.org/pubs/wp_698.pdf