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Frequently Asked Questions about the Financial Crisis

How has the financial crisis affected the Fed’s monetary policy?

The financial crisis has interfered with the Fed's ability to operate a conventional monetary policy. Lender-of-last-resort measures have been a primary focus. The FOMC has reduced its target for t...
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With the federal funds rate near zero, is monetary policy still relevant?

Monetary policy remains potent. Even with the fed funds rate at zero, the Fed can continue to influence financial markets and the economy through open market operations and various lending programs...
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Recent News

The U.S. Treasury Department announces guidelines to enable servicers to begin modifications of eligible mortgages under the Homeowner Affordability and Stability Plan.

The U.S. Treasury Department and the Federal Reserve Board announce the launch of the Term Asset-Backed Securities Loan Facility (TALF). Under the program, the Federal Reserve Bank of New York will lend up to $200 billion to eligible owners of certain AAA-rated asset-backed securities backed by newly and recently originated auto loans, credit card loans, student loans and small business loans that are guaranteed by the Small Business Administration. The Federal Reserve and Treasury expect to include asset-backed securities backed by other types of loans in future monthly fundings. Subscriptions for funding in March will be accepted on March 17, 2009. Securitizations will be funded by the program on March 25, 2009. The program will hold monthly fundings through December 2009 or longer if extended by the Federal Reserve Board.

The U.S. Treasury Department and Federal Reserve Board announce a restructuring of the government's assistance to American International Group (AIG). Under the restructuring, AIG will receive as much as $30 billion of additional capital from the Troubled Asset Relief Program (TARP). In addition, the U.S. Treasury Department will exchange its existing $40 billion cumulative preferred shares in AIG for new preferred shares with revised terms that more closely resemble common equity. Finally, AIG's revolving credit facility with the Federal Reserve Bank of New York will be reduced from $60 billion to no less than $25 billion and the terms will be modified. In exchange, the Federal Reserve will receive preferred interests in two special purpose vehicles created to hold the outstanding common stock of two subsidiaries of AIG: American Life Insurance Company and American International Assurance Company Ltd. Separately, AIG reports a fourth quarter 2008 loss of $61.7 billion, and a loss of $99.3 billion for all of 2008.

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