In addition, the interest rates on the loans would be at penalty rates above those on similar forms of credit in normal times, and the loans would be backed by collateral that was sufficient to protect the taxpayer from losses. All of these criteria are consistent with how the Federal Reserve operated its broad-based facilities in the crisis.
Lending to individual nonbank institutions During the crisis, the Federal Reserve also lent to individual nonbank institutions whose default would have been extremely damaging for the financial system and the state of the economy. 5 The Dodd-Frank Act removed the Federal Reserve’s authority to lend to an individual troubled institution.