Moreover, those episodes have highlighted the extent to which the provision of liquidity in an environment of heightened uncertainty can play an important role in allowing financial institutions to make more-accurate judgments about the solvency and creditworthiness of prospective borrowers (Mishkin, 2007a).
In that context, I would now like to describe the three tools that the Federal Reserve has used over the past six months in providing liquidity to the financial system. 1  Further details about each of the Federal Reserve's policy tools may be found in chapter 3 of The Federal Reserve System: Purposes & Functions (Board of Governors, 2005).