With the accelerated exposure of subprime mortgage risks and the rising default rate, it directly impacts financial institutions that issue subprime loans and affects financial institutions such as hedge funds and investment banks that hold subprime bonds. The market panic spread rapidly, which triggered violent fluctuations in the capital market and foreign exchange market. Confidence in the financial market was severely hit, and a large number of investors threw out high-risk bonds and turned to the low-risk national debt market to avoid risks, resulting in tight supply of funds in the bond market and the stock market, and the subprime bond market fell sharply.
During this period, the Federal Reserve made full use of traditional monetary policy tools and corresponding policy measures to intervene in the financial market.
(1) Open market operation and inject liquidity. Since August 9, the Federal Reserve has frequently used open market operations to inject and recover liquidity throughout August. In addition to the usual overnight repo transactions, the 14-day repo transaction has also been used for many times to meet the continuous liquidity demand of the market. On August 10, the injected liquidity was as high as $35 billion, far exceeding the daily average transaction scale of several billion dollars.
(2) Reduce the benchmark interest rate of federal funds. Despite the inflationary pressure, on September 6, 2007, the Federal Reserve lowered the benchmark interest rate of the federal funds from 5.25% to 4.75%, which was the first reduction since June 2003. Since then, the federal funds rate has been lowered several times, recently to 2%.
(3) Reduce the discount rate. On August 17, 2007, the Federal Reserve decided to lower the discount rate by 0.5 percentage point, from 6.25% to 5.75%, and temporarily extend the discount period from the usual overnight to 30 days, which can be extended as needed. At the same time, the collateral of discount loans includes mortgage bonds and other assets. By August 30, 2008, the discount interest rate has been reduced for more than ten times, and the balance of discounted loans has risen sharply, providing a lot of liquidity support for the banking industry.
It is worth noting that in order to cope with the spread of the subprime mortgage crisis, central banks all over the world are deeply involved in the handling of this crisis and have formed "cooperation" with the liquidity operation of the Federal Reserve. The European Central Bank opened its market on a large scale for several days in a row. 10 and 13 injected 94.8 billion euros, 6 10 billion euros and 47.6 billion euros into the banking system respectively, and central banks in Japan, Australia and other countries also injected capital one after another.
Federal Reserve's Innovative Liquidity Management Tool
Due to a series of measures, the liquidity tension in the financial market has been temporarily eased. However, since the end of 2007, the losses disclosed by major financial institutions have exceeded people's expectations, indicating that the profitability of financial institutions has declined. At the same time, the effect of interest rate policy is not obvious and the risk of economic recession is further increased. With the subprime mortgage crisis spreading to the bond insurance field, market confidence has been frustrated again, and the financial market situation has further deteriorated.
With the spread and escalation of the crisis, the Federal Reserve launched three new liquidity management tools after 65438+ in February 2007.
TAF (1) is a policy tool to provide loan financing to qualified deposit-taking financial institutions through bidding and auction. The financing amount is fixed, the interest rate is determined by the auction process, and the term of funds can be as long as 28 days, thus providing financial institutions with longer-term funds (see table 1). From June 5438+February 2007 to the present, the Federal Reserve has operated 2-3 times a month, with a quota of about 30-80 billion US dollars each time.
(2) The Primary Dealer Credit Facility (PDCF) is an overnight financing mechanism for market traders such as investment banks, aiming at providing assistance to market traders in an emergency and saving companies on the verge of bankruptcy.
(3) TSLF (TSLF) is a financing method of selling highly liquid government bonds to market traders and buying other mortgaged assets through competitive bidding. Traders can provide federal agency bonds, mortgage-backed bonds and other non-federal agency bond assets. Its term is generally 28 days, which can be used to improve the balance sheets of financial institutions such as banks, thus improving the liquidity of financial markets. It is still widely used today.
In addition, the Federal Reserve has also strengthened cooperation with the European Central Bank and the Bank of England to ease the capital demand in the local money market, such as establishing $20 billion and $4 billion currency swap mechanisms with the European Central Bank and the Swiss National Bank respectively to stabilize the dollar loan interest rate in the offshore market.
On the one hand, the use of these non-traditional tools by the Federal Reserve has extended the term of liquidity management, changed the previous practice that the Federal Reserve mainly used short-term policy tools such as overnight, and enhanced the flexibility of liquidity management; On the other hand, liquidity operation is carried out through a large number of transactions such as government bonds, institutional bonds and asset-backed bonds, and the management of market interest rates is strengthened. At the same time, however, the Fed's expansion of supervision and rescue scope from commercial banks to investment banks has also caused widespread controversy.
Understanding of Congress and the President: Economic stimulus plan
In view of the deepening of the subprime mortgage crisis at the end of 2007, in addition to the Federal Reserve, various government departments in the United States have successively introduced a number of rescue measures for the mortgage market, which finally contributed to the introduction of the economic stimulus plan with a total scale of 654.38+050 billion US dollars.
From June 5438 to February 2007, the US Treasury Department took the lead in proposing a rescue plan, which was approved by the President. Through negotiations with loan companies and investors, the plan freezes the floating rate mortgage loans issued within two years to reduce the repayment pressure of housing loans. 12 On February 20th, the President signed the Mortgage Debt Relief Act, which provides tax relief assistance to homeowners while reducing their mortgage loans, so as to enhance their solvency.
In February, 2008, the United States government launched ProjectLifeline in conjunction with six mortgage companies, including Bank of America, Citibank and JPMorgan Chase, which mainly aimed at homeowners whose monthly mortgage repayment was overdue for more than 90 days, and stipulated that homeowners could apply to mortgage agencies for a 30-day buffer period.
After months of deliberation and discussion between the President and Congress, the economic stimulus plan to deal with the crisis finally reached an agreement. On February 14, 2008, President Bush signed a bill with a total amount of about168 billion US dollars, aiming at stimulating consumption and investment, stimulating economic growth and avoiding economic recession through substantial tax rebates.
The main contents of the bill include: taxpayers with an annual income of less than $75,000 will receive a one-time tax refund of $600; If the tax is paid by family, if the annual income of the family does not exceed $654.38+$0.5 million, each family will receive a tax refund of $654.38+$0.200; Families with children will get an extra tax rebate of $300 per child. In addition, taxpayers with an annual income of more than 75,000 US dollars or families with an annual income of more than 6.5438+0.5 million US dollars will also receive partial tax rebates. At the same time, a large number of small and medium-sized enterprises can also get tax incentives totaling 50 billion US dollars. In addition, the plan raised the maximum amount of mortgage loans held by government-supported enterprises (GSE).
Many economists believe that the economic stimulus plan will play a positive role in US economic growth. The effect of the recent fiscal and economic stimulus plan of the US government on the US economic growth will be revealed in the third quarter of this year. Without an economic stimulus package totaling $65,438+$52 billion, the US economy would only grow by about 2.5% in the third quarter. It is estimated that the economic stimulus plan in the third quarter will have an impact of nearly three percentage points, and with the support of relevant policies, the economic growth may reach 5.25%. But at the same time, the stimulus plan may also have a negative impact on long-term economic growth.
The Housing and Economic Recovery Act was finally promulgated.
Facing the gloomy situation, the housing and economic recovery bill of 2008 was finally passed. The President signed and promulgated the bill on July 30th. On the one hand, the bill announced that it would allocate $300 billion to set up a special fund managed by the Federal Housing Administration (FHA) to provide guarantees for 400,000 households mortgaged in loans overdue; On the other hand, it authorized the US Treasury to increase the credit lines of Fannie Mae and Freddie Mac "indefinitely" and promised that the US government would invest and buy shares of these two institutions when necessary. In addition, it is planned to provide emergency funds to local governments to purchase vacant and foreclosed properties and rent them or sell them to low-income families at low prices.
The final passage of the Housing and Economic Recovery Act not only provides direct relief measures for housing mortgage loans, but also provides solutions for some deep-seated factors in the subprime mortgage crisis, so it will play a positive role in stabilizing market confidence. At the same time, the handling of many problems accumulated by Fannie Mae and Freddie Mac involves many structural problems, which is bound to be a long and difficult process of reform and adjustment. Faced with the problems of financial institutions, European countries have taken measures to maintain financial stability: first, they have injected capital into their troubled financial institutions, such as France, Belgium and Luxembourg, which jointly injected 6.4 billion euros into Dexia Bank; The nationalization of NorthernRock in Britain temporarily eased the above banking crisis. Second, Ireland, Britain, Germany, France, Austria, Sweden, Denmark, Iceland and other countries have announced to guarantee all their personal bank accounts to stabilize the confidence of depositors. 654381October 7th, the finance ministers of 27 EU countries decided to raise the minimum deposit guarantee amount of EU countries to 50,000 euros within at least one year. Third, central banks such as the European Central Bank (ECB) and the United Kingdom joined hands with the Federal Reserve to inject liquidity into the banking system.
First, the primary responsibility of the European Central Bank is to maintain price stability in the euro zone and not to assume the role of lender of last resort. Therefore, in response to the crisis, the European Central Bank can hardly solve the repayment problem of individual banks except injecting liquidity into the entire banking system.
Second, central banks in the euro zone are not note-issuing banks, and only governments can take financial rescue measures. Although the rescue actions of various countries have avoided the further deterioration of their own crises, they have objectively caused beggar-thy-neighbor, and other countries are forced to follow suit, otherwise they will become the next targets to be hit. In particular, a government must be responsible to its own taxpayers, and it is difficult to rescue overseas banks, which leads to the negative impact on some small countries after big countries take action. For example, Iceland faced bankruptcy when it could not get assistance from EU countries, so it had to borrow $5.4 billion from Russia to deal with the crisis.
Third, from a technical point of view, it is difficult for some large European banking groups to get a government bailout because of their transnational operations. These big banks usually have a subsidiary bank with an independent legal person and an independent balance sheet in European countries. At the same time, the Group manages the businesses and funds of its subsidiaries in a highly unified way. Once the bank is divided and taken over by the relevant countries, the business cannot continue, and countries can only temporarily take over and then sell it. In this environment, it is difficult to find a buyer. For example, after the Fortis crisis, Belgian, Luxemburg and Dutch governments nationalized Fortis subsidiaries in China. However, due to the above technical problems, the rescue mode was finally changed. The governments of Belgium and Luxembourg sold the above shares to BNP Paribas and held shares in BNP Paribas instead. In addition, once the bank fails, how to share the losses between different countries will become very sensitive and it will be difficult to reach a solution.
On October 4th, 65438/KLOC-0, at the Paris Summit of France, Germany, Britain and Italy, Germany and Britain rejected the French proposal to set up a rescue fund for European banks (similar to the American financial rescue plan). The joint statement issued after the meeting said that all countries are committed to ensuring the stability of the banking and financial systems, but the final crisis response measures will be decided by each country. However, if the EU does not take coordinated measures to improve its overall ability and coordination in dealing with the crisis, individual and unilateral actions by all countries will get twice the result with half the effort.
In this crisis, due to the low degree of internationalization of the banking industry in eastern European countries that have recently joined the European Union, they have not been seriously affected.