Crisis Timeline: Fed Actions to Combat Credit Crunch
The U.S. Treasury and Federal Reserve on Monday eased the terms of official aid to battered insurance giant American International Group.
The Treasury will buy $40 billion of new preferred AIG stock under the Troubled Asset Relief Program (TARP), allowing the Fed to trim its original AIG loan to $60 billion from $85 billion.
The Fed cut the borrowing margin it will charge AIG to 300 basis points from 850 basis points, extended the life of the credit to five from two years, and trimmed the fee on undrawn funds to 75 basis points from 850 basis points.
It also said it was establishing two new facilities to take up to $52.5 billion in trouble assets off AIG's books.
Following is a chronology of Fed actions to counter a global credit crisis sparked by the collapse of U.S. housing:
Aug. 10, 2007: Fed notes banks are experiencing unusual funding needs and says it will provide funds as needed.
Aug. 17: Fed cuts discount rate; says it will act as needed to safeguard economy from financial market disruptions.
Nov. 26: Fed promises more than the usual year-end liquidity and says it will lift limits on how much can be lent
to any one bank.
Dec. 12: Fed establishes Term Auction Facility (TAF) to provide funds over longer period to a wider range of banks. It also sets up foreign exchange swap lines with the European Central Bank and Swiss National Bank for up to six months.
Jan. 3, 2008: Fed raises TAF auction amounts to $30 billion from $20 billion for each of the two auctions in January.
March 7: Fed increases size of TAF auctions to $50 billion and starts a series of 28-day repurchase transactions with primary dealers expected to total another $100 billion.
March 11: Fed says to accept broader range of collateral in new program for primary dealers, the Term Securities Lending Facility (TSLF), to lend up to $200 billion for 28 days.
March 14: Fed says authorized JPMorgan Chase to borrow at discount window for Bear Stearns.
March 16: Fed cuts discount rate and announces Primary Dealer Credit Facility (PDCF).
March 24: Fed takes over Bear Stearns assets valued at $30 billion. JPMorgan pays first $1 billion of loss.
July 13: Fed authorizes Fannie Mae and Freddie Mac to borrow from discount window.
July 30: Fed extends the PDCF and TSLF through Jan. 30. It introduces 84-day TAF loans.
Sept. 14: Fed expands collateral accepted for emergency loans, allowing equities for the first time ever under PDCF.
Sept. 16: Fed agrees to lend up to $85 billion to American International Group.
Sept. 17: Treasury says to begin auctions to raise funds for Fed.
Sept. 18: Fed expands foreign swaps to $247 billion.
Sept. 19: Fed opens discount window to fund purchases of asset-backed commercial paper from money market mutual funds.
Sept. 21: Fed approves applications of Goldman Sachs and Morgan Stanley to become bank holding companies.
Sept. 24: Fed establishes swaps with Australia, Denmark, Norway and Sweden.
Sept. 29: Fed increases swaps by $330 billion to $620 billion and extends them through April 30, 2009.
Oct 6: Fed said it would begin paying interest on required and excess reserve balances that banks hold with the Fed.
Oct 6: Fed substantially increased Term Auction Facility to $150 billion for both the 28- and 84-day auctions.
Oct. 7: Fed creates a Commercial Paper Funding Facility (CPFF) to backstop U.S. issuers of commercial paper.
Oct. 8: Fed cuts its key federal funds lending rate by a half percentage point to 1.5 percent in a coordinated move with other central banks in Europe and Asia
Oct. 13: Fed again expands its currency swaps with the Bank of England, the European Central Bank and Swiss National Bank.
Oct. 14: Fed names Pacific Investment Management Co, or Pimco will serve as the CPFF asset manager.
Nov. 10: The Fed and Treasury sweeten terms of aid to AIG, taking preferred stock and reducing loan margin and lending fees.