The Fed created a variety of facilities under 13(3), giving rise to an alphabet soup of new acronyms.5 Those facilities provided liquidity to different segments of our economy, ranging from primary dealers to issuers of commercial paper. Their broader purpose, however, was to facilitate the availability of credit to businesses and households through on-lending. Not all of the Fed’s responses involved lending, either under Section 13(3) or at the discount window. On the supervisory side, the Federal Reserve’s Supervisory Capital Assessment Program (SCAP) (the “stress test” of the 19 largest US financial institutions) addressed uncertainty about their ability to weather additional losses. The results were disclosed publicly in a significant departure from standard practice to keep supervisory information confidential. Transparency, as well as the availability of a government backstop, encouraged confidence in US institutions. Of course, the Fed’s actions did not happen in a vacuum, but rather in the context of other actions taken by other regulators and Congress. Perhaps most notably, in October 2008, Congress passed the Emergency Economic Stabilization Act. That statute allowed, among other things, Treasury to create the Troubled Asset Relief Program to inject capital into financial institutions. In addition, the Federal Deposit Insurance Corporation expanded its guarantees of bank liabilities under the Temporary Liquidity Guarantee Program. The Federal Housing Finance Agency placed Fannie Mae and Freddie Mac into conservatorship. Non-US authorities responded to crises in their own jurisdictions. And really this is just a sampling of the diverse and creative array of public sector responses to the crisis.
Under the living will process today, firms must approach their bankruptcy using tools geared toward corporate restructuring. Any changes to the regimes under which financial institutions can and will fail should be carefully considered before enactment, particularly to the extent they retain, or not, a credible source of liquidity going forward. This isn’t abstract financial theory. This concerns the ability of people on Main Street—employees, retirees, small business owners—to persevere in times of severe financial stress. Returning to the human element of the crisis, these are the same people who suffered during the Great Recession and who expect us all to do better during the next period of stress. 1 Lisa Kraidin and Ben Snodgrass assisted in the preparation of these remarks. 2 See Mariacristina De Nardi et al., Consumption and the Great Recession, Economic Perspectives, 1st Quarter  2012, at 1, 1. 3 See Jesse Bricker et al., Changes in U.S. Family Finances from 2013 to 2016: Evidence from the Survey of  Consumer Finances, Federal Reserve Bulletin, Sept. 2017, at 1, 10. 4 See Thomas C. Baxter, Jr. & David Gross, The Federal Reserve’s Response to the Crisis, i n International  Monetary and Financial Law: The Global Crisis 293, 298–99 (Mario Giovanoli & Diego Devos eds., 2010). Use of 13(3) had been authorized during the 1960s, but no loans were made. See id. 5 These facilities included, among others, the PDCF (the Primary Dealer Credit Facility), the TALF (the Term  Asset-Backed Securities Loan Facility), and the CPFF (the Commercial Paper Funding Facility).