The Term Asset-Backed Securities Loan Facility (TALF) (U.S. GFC)

In the fall of 2008, the securitization market, which was the major provider of credit for consumers and small businesses, came to a near halt. Investors in this market abandoned not only the residential mortgage-backed securities that triggered the financial crisis but also consumer and business asset-backed securities (ABS), which had a long track record of strong performance, and commercial mortgage-backed securities (CMBS). Also, the unprecedented widening of spreads for these securities rendered new issuance uneconomical, and the shutdown of the securitization market threatened to exacerbate the downturn in the economy. On November 25, 2008, the Federal Reserve (the Fed) thus announced the Term Asset-Backed Securities Loan Facility (TALF). TALF was launched on March 3, 2009, to help stabilize funding markets for issuers in the securitization market. The TALF extended term loans, collateralized by the securities, to buyers of certain high-quality asset-backed securities. By reopening the ABS market, the Fed intended to ultimately support the provision of credit to consumers and small businesses. Instead of directly participating in the securitization market, the Fed encouraged private investors to do so by providing them with liquidity and only took risk in the loss of the value of ABS. In aggregate, the Fed issued 2,152 loans, totaling $71.1 billion. The volume of outstanding loans peaked in March 2010 at$48.2 billion. Loans secured by nonmortgage ABS totaled $59 billion, and loans secured by legacy CMBS totaled$12 billion. The original expiration date for the TALF of December 31, 2009, was extended to March 31, 2010, for loans against ABS and legacy CMBS, and until June 30, 2010, for loans against newly issued CMBS. On October 29, 2014, the final outstanding TALF loan was repaid in full, and in the following month, a total of $745.7 million in accumulated fees and income was paid to the Treasury (90%) and the Federal Reserve Bank of New York (10%)

The United Kingdom\u27s Asset-backed Securities Guarantee Scheme (U.K. GFC)

The key structures of housing finance in the UK in the years leading up to the global financial crisis of 2007-09 consisted of retail deposits, secondary market funding and wholesale interbank lending. Although retail deposits were the major funder of UK mortgages, secondary market funding, which included covered bonds and residential mortgage-backed securities (RMBS), accounted for 31% of UK mortgage lending in 2006. In 2007, the collapse of the U.S. subprime mortgage market triggered a financial shock, and the shock quickly traveled beyond national borders. Regardless of differences in the UK mortgage market, investors’ concern over the prospects of the U.S. housing market influenced their perception of UK mortgage-backed assets. And with the UK RMBS market substantially reliant on overseas investors, their concern contributed to a downturn in the UK market. In a November 2008 report on mortgage finance by Sir James Crosby, it was argued that “[w]ithout intervention, the market in mortgage-backed securities won\u27t return any time soon …” and that “the inability to refinance existing mortgage-backed funding and the continuing pressures in wholesale funding markets … [were] really hitting the banks’ capacity to make new loans …”. In response to this report, HM Treasury announced a £50 billion guarantee scheme for asset-backed securities (the Scheme) on January 19, 2009 and launched this Scheme on April 22, 2009. The Scheme, in which HM Treasury provided a guarantee for eligible newly issued RMBS, represented an extension of the 2008 Credit Guarantee Scheme for unsecured debt issuance by UK incorporated banks and building societies. The Scheme aimed to support residential mortgage lending in the UK economy. The Scheme closed on December 31, 2009, without having been used

Guarantees and Capital Infusions in Response to Financial Crises A: Haircuts and Resolutions

After the mortgage market meltdown in mid-2007 and during the financial crisis in 2008, major financial institutions around the world were on the verge of collapsing one after another. Faced with these troubles, the government had to respond quickly to contain the crisis as efficiently as possible. It was, however, limited in resources, time, and experience. To make matters worse, the complexity and opaqueness of the financial market and these institutions greatly affected the government’s ability to design an efficient and consistent method to contain the crisis. Shortly after Lehman Brothers filed for bankruptcy on September 15, 2008, American International Group (AIG) was also in deep trouble and close to failure when the Federal Reserve decided to bailout the institution. Washington Mutual (WaMu) and Wachovia were also facing collapse due to their exposure in risky mortgage products around the same time. WaMu eventually closed, and the Federal Deposit Insurance Corporation (FDIC), appointed as a receiver, sold parts of its business to JP Morgan Chase & Co. while equity holders and debtors of the institution were left to take a major haircut. On the other hand, Wachovia was able to avoid the same fate as WaMu through a systemic risk exception under the FDIC Improvement Act of 1991. This provision allowed the FDIC to stand behind Wachovia with Citigroup. This case provides details on the background and government response for each troubled financial institution during the financial crisis, and the rationale behind the design of each response

Auntie knows best? public broadcasters and current affairs knowledge

Public service broadcasters (PSBs) are a central part of national news media landscapes. In many countries, PSBs are the first choice of citizens when it comes to news providers. And in perhaps more countries still, PSBs are thought of as specialists in provision of hard news. We test this proposition here using survey data from a large crossnational survey involving indicators of current affairs knowledge and media consumption. Specifically, we examine whether exposure to public versus commercial news influences the knowledge citizens possess about current affairs, both domestically and internationally. We also test, using propensity score analysis, whether there is variation across PSBs in this regard. Results indicate that compared to commercial news, watching PSB has a net positive influence on knowledge of hard news, though not all PSBs are equally effective in contributing to knowledge acquisition. This knowledge gap between PSB and commercial news media consumption appears to be mitigated by factors such as de jure independence,proportion of public financing, and audience share

Restructuring and Forgiveness in Financial Crises B: The Asian Crisis of 1997

Asia’s economy, Thailand in particular, was booming when the financial crises hit in the 1990s. However, troubles were brewing underneath the seemingly buoyant economy. With a fragile financial system and ineffective domestic government responses to these troubles, an exchange rate crisis took over Thailand, and this crisis started a financial contagion in the neighboring countries. This case reviews the background and domestic government responses to contain the crisis, and the international intervention provided by the International Monetary Fund including the assistance and the required reforms accompanying the support

Guarantees and Capital Infusions in Response to Financial Crises B: U.S. Guarantees During the Global Financial Crisis

During 2008-09, the federal government extended multiple guarantee programs in an effort to restore the financial market and contain the panic and crisis in the market. For example, the Treasury provided a temporary guarantee program for the money market funds, the FDIC decided to stand behind certain debts and non-interest-bearing transaction accounts, and the Treasury, the FDIC, and the Federal Reserve agreed to share losses in certain assets belonging to Citigroup. This case reviews these guarantee programs implemented during the global financial crisis by the government and explores the different rationale that shaped certain design features of each program