TY  - JOUR
AU  - Afonso,Gara
AU  - Kovner,Anna
AU  - Schoar,Antoinette
TI  - Stressed not Frozen: The Fed Funds Market in the Financial Crisis
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15806
PY  - 2010
Y2  - March 2010
UR  - http://www.nber.org/papers/w15806
L1  - http://www.nber.org/papers/w15806.pdf
N1  - Author contact info:
Gara Afonso
Federal Reserve Bank of NY
33 Liberty Street
New York, NY 10045
E-Mail: Gara.Afonso@ny.frb.org

Anna Kovner
Financial Intermediation Function
Federal Reserve Bank of New York
33 Liberty Street
New York, NY 10045
E-Mail: Anna.Kovner@ny.frb.org

Antoinette Schoar
MIT Sloan School of Management
100 Main Street, E62-638
Cambridge, MA  02142
Tel: 617/253-3763
Fax: 617/258-6855
E-Mail: aschoar@mit.edu
AB  - This paper examines the impact of the financial crisis of 2008 on the federal funds market, specifically the bankruptcy of Lehman Brothers. Rather than a complete collapse of lending in the presence of a market wide shock, we see that banks become more restrictive in which counterparties they lend to. After Lehman Brothers, we find that amounts and spreads become more sensitive to borrower bank characteristics. While the market does not contract dramatically, lending rates increase. Further, the market does not seem to expand to meet the increased demand predicted by the drop in other bank funding markets. We examine discount window borrowing as a proxy for unmet fed funds demand and find that the fed funds market is not indiscriminate. As expected, borrowers who access the discount window have lower ROA. When looking at the lender side we do not find that the characteristics of the lending bank importantly affect the amount of interbank loans a bank makes. In particular, we do not find that worse performing banks start hoarding liquidity and indiscriminately reduce their lending.
ER  -