Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

The largest backstop for the repo market that the Fed operated during the crisis was the Primary Dealer Credit Facility (PDCF).17 It was introduced after the run on Bear Stearns under the emergency 13(3) powers of the Fed. The PDCF offered the key operators in the repo market discreet and unlimited access to overnight Fed liquidity in exchange for a wide range of collateral. Not surprisingly, the dealers took ample advantage. Total lending under PDCF came to $8.951 trillion. This was a huge amount, but the loans were made overnight and they should be seen in relation to the daily collateral posting in repo markets that peaked at $4.5 trillion in March 2008. The maximum amount outstanding on the PDCF was on September 26, 2008, at $146.57 billion. PDCF had the distinction of being the only large Fed liquidity program to have supported predominantly American banks. Merrill Lynch, Citigroup, Morgan Stanley and Bank of America were the heaviest users. But appearances were to a degree deceiving because the Fed allowed the London-based subsidiaries of Goldman Sachs, Morgan Stanley, Merrill Lynch and Citigroup to take advantage of the program. The Fed was thus remotely backstopping the City of London repo market.