The limited availability of credit to sound borrowers, even when secured by what had been seen as good collateral, has been a source of instability and constraint on credit flows. Central banks can address such a shortage because they can remain unaffected by panicky flights to liquidity and safety.
Their willingness to extend collateralized lending in size against a broad range of assets can replace flows of private credit that are normally uncollateralized. Another aspect of our efforts to affect financial conditions has been the extension of our open market operations to large-scale purchases of agency mortgage-backed securities (MBS), agency debt, and longer-term Treasury debt.