The document examines the financial crisis of 2007-2009, detailing the events leading up to the crisis, the government's response, and the effectiveness of various interventions. It highlights how the U.S. government, initially slow to act, ultimately implemented a comprehensive and innovative strategy that included broader regulatory powers, aggressive financial support, and international cooperation to stabilize the economy. Despite its political unpopularity, the response was successful in mitigating the crisis's impact and restoring financial market functionality.

1. at BROOKINGS
CHARTING THE
FINANCIAL CRISIS
U.S. Strategy and Outcomes

2. Introduction
The global financial crisis of 2007-2009 and subsequent Great Recession constituted the worst shocks to the United States
economy in generations. Books have been and will be written about the housing bubble and bust, the financial panic that
followed, the economic devastation that resulted, and the steps that various arms of the U.S. and foreign governments took to
prevent the Great Depression 2.0. But the story can also be told graphically, as these charts aim to do.
What comes quickly into focus is that as the crisis intensified, so did the government’s response. Although the seeds of the
harrowing events of 2007-2009 were sown over decades, and the U.S. government was initially slow to act, the combined efforts
of the Federal Reserve, Treasury Department, and other agencies were ultimately forceful, flexible, and effective. Federal
regulators greatly expanded their crisis management toolkit as the damage unfolded, moving from traditional and domestic
measures to actions that were innovative and sometimes even international in reach. As panic spread, so too did their efforts
broaden to quell it. In the end, the government was able to stabilize the system, re-start key financial markets, and limit the
extent of the harm to the economy.
No collection of charts, even as extensive as this, can convey all the complexities and details of the crisis and the government’s
interventions. But these figures capture the essential features of one of the worst episodes in American economic history and the
ultimately successful, even if politically unpopular, government response.
1

3. Antecedents of the Crisis
2

4. ANTECEDENTS
In the years leading up to the crisis,
the underlying performance of the
U.S. economy had eroded in
important ways.
3

5. %
0
1
2
4
3
5
20082005200019951990198519801975
Sources: Congressional Budget Office,“An Update to the Economic Outlook: 2018 to 2028”; internal calculations
ANTECEDENTS
Because the growth of productivity and the labor force had slowed in the
decade before the crisis, the potential economic growth rate was falling.
Average growth in real potential GDP (August 2018 estimate)
Productivity growth
Contribution to potential GDP from:
Labor force growth
4

6. 94
96
98
100
102
104
106
’08’07’06’05’04’03’02’01’00’99’98’97’96’95’94’93’92’91’90
ANTECEDENTS
Overall prime-age participation in the labor force had been falling, as the
participation of women slowed and men’s continued a decades-long decline.
Civilian labor force participation rates for people ages 25-54, indexed to January 1990=100
Women, ages 25-54
All people, ages 25-54
Men, ages 25-54
Source: Bureau of Labor Statistics via Haver Analytics
5

7. – 50
0
+ 50
+100
+150
+200
+250
+300%
200820052000199519901985198019751970
ANTECEDENTS
Income growth for the top 1 percent had risen sharply, driving income
inequality to levels not seen since the 1920s.
Cumulative growth in average income since 1979, before transfers and taxes, by income group
Bottom 20 percent
of households
81st to 99th
percentiles of
households
Top 1 percent
of households
Middle 60 percent
of households
Source: Congressional Budget Office,“The Distribution of Household Income, 2014”
6

8. 0
20
40
60
80
100
120
140%
200820052000199519901985198019751970
ANTECEDENTS
Household debt as a share of income had risen to alarming heights.
Aggregate household debt as a share of disposable personal income (after taxes)
Sources: Federal Reserve Board Financial Accounts of the United States; Federal Reserve Board,“Household
Debt-to-Income Ratios in the Enhanced Financial Accounts”
Mortgage debt
Consumer debt
7

9. ANTECEDENTS
Meanwhile, the financial system was
becoming increasingly fragile.
8

10. 0
8
6
4
2
10%
2008200019901980197019601950194019301920
ANTECEDENTS
A“quiet period”of relatively low bank losses had extended for nearly 70 years
and created a false sense of strength.
Two-year historical loan-loss rates
Sources: Federal Deposit Insurance Corp.; Federal Reserve Board; International Monetary Fund
9

11. –15
–10
– 5
0
+ 5
+10
+15
+20%
200820052000199519901985198019751970
ANTECEDENTS
The“Great Moderation”— two decades of more stable economic outcomes with
shorter, shallower recessions and lower inflation — had added to complacency.
Quarterly real GDP growth
Source: Bureau of Economic Analysis via Federal Reserve Economic Data
10

12. 0
5
10
15
20%
200820052000199519901985198019751970
ANTECEDENTS
Long-term interest rates had been falling for decades, reflecting decreasing
inflation, an aging workforce, and a substantial rise in global savings.
Benchmark interest rates, monthly
30-year fixed
mortgage rate
10-year
Treasury 2-year
Treasury
Sources: Federal Reserve Board and Freddie Mac via Federal Reserve Economic Data
11

13. 1970 1975 1980 1985 1990 1995 2000 2005 2008
0
+ 40
+ 60
+ 80
+100%
+ 20
Home prices had increased modestly
through several boom-and-bust cycles
since the 1970s, but started a much
more dramatic rise in the late 1990s.
ANTECEDENTS
Home prices across the country had been rising rapidly for nearly a decade.
Real Home Price Index, percentage change from 1890
Source: U.S. Home Price and Related Data, Robert J. Shiller, Irrational Exuberance
12

14. 0
50
100
150
200
250
200820052000199519901985198019751970
%
ANTECEDENTS
Credit and risk had migrated outside the regulated banking system.
Credit market debt outstanding, by holder, as a share of nominal GDP
Insurers
GSEs
ABS
MMF
Source: Federal Reserve Financial Accounts of the United States Notes: GSE: government-sponsored enterprise (including Fannie Mae
and Freddie Mac); ABS: asset-backed securities; MMF: money market funds
Q1 1980
31%
69%
Q1 2008
64%
36%
Nonbank Financials
Broker-Dealers
Banks
13

15. 0
0.25
0.50
0.75
1.00
1.25
1.50
1.75
$2.00 trillion
200820052000199519901985198019751970
The use of repo funding tripled
in the decade prior to 2008.
ANTECEDENTS
The amount of financial assets financed with short-term liabilities had also
risen sharply, increasing the vulnerability of the financial system to runs.
Net repo funding to banks and broker-dealers
Source: Federal Reserve Board Financial Accounts of the United States
14

16. 0
2
4
6
8
10
12
14%
Wells Fargo
Citi
Goldman Sachs Morgan
Stanley
Bear
Stearns
JPMorgan
Chase Merrill
Lynch
Lehman
Bank of America
0%
Reliance on short-term funding*
10% 20% 30% 40% 50% 60%
0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0%
’08’07’06’05’04’03’02’01
Largest U.S. bank
holding companies
All U.S. financial institutions
Tier 1 common equity
ANTECEDENTS
The regulatory capital regime for the U.S. financial system was inadequate.
Tier 1 common equity as a percent of risk-weighted assets Tangible common equity to tangible assets ratio
Sources: Capital ratios: Federal Reserve Bank of New York‘s Research and Statistics
Group; tangible common equity to tangible assets: company reports *Determined by share of financial assets pledged
Estimated
capital and funding
ratios, Q4 2007
Commercial bank
Investment bank
Some institutions more
dependent on short-term
funding were more leveraged.
The pre-crisis capital ratios
did not reflect the growing risks.
15

17. The Arc of the Crisis
16

18. 0
100
200
300
400
500 basis points
200920082007
Bank CDS
spreads
Source: Bloomberg. Note: Credit default swap spreads are equal-weighted averages of JPMorgan Chase,
Citigroup, Wells Fargo, Bank of America, Morgan Stanley, and Goldman Sachs.
ARC OF THE CRISIS
The financial crisis unfolded in several phases.
Bank credit default swap spreads and Libor-OIS
Libor-OIS
spread
Increasing Stress Early
Escalation
Breaking the Panic
and Resolution
17

19. 200820072006
–50
–40
–30
–20
–10
0
+10%
Detroit
San Francisco
Miami
Tampa
Los Angeles
San Diego
Phoenix
Las Vegas
Change, July 2006–March 2008
–22.5%
–22.6
–23.1
–23.4
–24.4
–25.6
–26.6
–27.7
ARC OF THE CRISIS
Home prices peaked nationally in the summer of 2006, then fell rapidly —
eight major cities had declined more than 20 percent by March 2008.
U.S. peak:
July 2006
U.S. change by March 2008: –9.0%
Sources: S&P CoreLogic Case-Shiller Home Price Indexes for 20 individual cities and National Home Price Index via Federal Reserve Economic Data
18

20. basis points
0
50
100
150
200
250
300
350
400
200920082007
Source: Bloomberg Note: GSE: government-sponsored enterprise
ARC OF THE CRISIS
Stress in the financial system built up gradually over late 2007 and early 2008,
as mortgage troubles and recession fears increased.
Libor-OIS spread
Bank of England provides
emergency credit to Northern
Rock, a troubled mortgage
lender, Sept. 14, 2007
Banks and GSEs start reporting
billions in losses in November 2007,
and warn of dividend cuts and a need
for more capital; stocks fall
BNP Paribas freezes
three funds on
Aug. 9, 2007, amid
fragile ABCP markets
JPMorgan Chase
rescues Bear Stearns
with emergency support
from Federal Reserve,
March 14, 2008
Stock markets plunge
Jan. 21–24, 2008, amid
recession fears
Bank of America announces intent
to buy Countrywide Financial,
the troubled mortgage lender,
Jan. 11, 2008
19
Libor-OIS
spread

21. Fannie Mae and Freddie Mac
guaranteed half of all U.S.
mortgages, or nearly $4.4 trillion
worth of debt.
As the housing market
deteriorated, deepening losses
at both GSEs sparked investor
concerns of insolvency, driving
their share prices lower.
200920082007
0
10
20
30
40
50
60
70
$80 a share
Source: The Center for Research in Security Prices via Wharton Research Data Services
ARC OF THE CRISIS
Investors were fearful that Fannie Mae and Freddie Mac might soon be
swamped by losses ...
Stock price of Fannie Mae and Freddie Mac
Freddie Mac
Fannie Mae
New York Attorney General subpoenas
Fannie Mae and Freddie Mac,
Nov. 7, 2007, in mortgage fraud investigation.
Morgan Stanley takes $3.7 billion loss on
subprime mortgage exposure; other big banks
also warn of huge writedowns.
Fannie Mae reports $1.4
billion loss on Nov. 9, 2007, amid
deteriorating loan delinquencies.
Freddie Mac reports
$2 billion net loss and
low capital reserves,
Nov. 20, 2007
20

22. 200920082007
0
100
200
300
400
500
600
Source: Bloomberg. Note: Credit default swap spreads are equal-weighted averages of JPMorgan Chase,
Citigroup, Wells Fargo, Bank of America, Morgan Stanley, and Goldman Sachs.
ARC OF THE CRISIS
... and raised similar concerns about the nation’s largest banks and
investment banks.
S&P 500 Financials index level and average of six big banks’CDS spreads, in basis points
S&P 500 Financials
Average
bank CDS
spread
21

23. A self-reinforcing
cycle of fear
ARC OF THE CRISIS
The rise in losses, the fear of further losses, and the liquidity pressures on the
system pushed the price of financial assets down and added to concerns about
the solvency of the financial system.
Economic or asset
price growth slows
People run from weak
financial institutions
Financial institutions
unload assets in fire sale
Asset prices
decline further
Banks lend less and
people spend less
Economic
growth slows
More financial
institutions
look weak
22

24. –6
–3
0
+3
+6%
–9
2010200920082007
Q4Q3Q2Q1 Q4Q3Q2Q1 Q4Q3Q2Q1 Q4Q3Q2Q1
ARC OF THE CRISIS
Yet the economic forecasts suggested a modest and manageable slowdown
in economic growth. The reality was far worse.
Real GDP, percent change from preceding quarter, SAAR, and Philadelphia Fed surveys of professional forecasters
Sources: Bureau of Economic Analysis via Federal Reserve Economic Data (data update of August 29, 2018); Philadelphia Federal Reserve Survey of
Professional Forecasters, 3Q 2007 and 1Q and 3Q 2008
Professional Forecasters’
GDP forecast, Aug. 2007
Actual GDP
Professional Forecasters’
GDP forecast, Feb. 2008
Professional Forecasters’
GDP forecast, Aug. 2008
23

25. The U.S. Strategy
24

26. U.S. STRATEGY
Among the key elements of the U.S. policy response were:
Use of the Fed’s lender of last resort authorities beyond the
banking system, for investment banks and funding markets.
An expansive use of guarantees to prevent runs on money funds
and a broad array of financial institutions.
An aggressive recapitalization of the financial system,
in two stages, backed by expanded FDIC guarantees.
A powerful use of monetary and fiscal policy
to limit the severity of the recession and restore economic growth.
A broad mix of housing policies to prevent failure of the GSEs, slow
the fall of home values, lower mortgage rates, and aid in refinancings.
An extension of dollar liquidity to the global financial system,
combined with international cooperation and Keynesian stimulus.
25

27. U.S. STRATEGY
The U.S. government’s initial response to the crisis was gradual, and the tools
were limited and antiquated because they were designed for traditional banks.
FDIC
• Resolution authority for banks,
with systemic risk exemption to
allow FDIC to provide broader
guarantees.
• Deposit insurance for banks.
Federal Reserve
• Discount window lending for
banks, and in extremis for other
institutions.
• Swap lines for foreign central
banks.
TOOLS AVAILABLE
• To intervene to manage the
failure or nationalize nonbanks.
• To guarantee the broader
liabilities of the financial system.
• To inject capital into the financial
system.
• For the Fed to purchase assets
other than Treasuries, Agencies
and Agency MBS.
• To inject capital or guarantee
the GSEs.
NO AUTHORITY
26

28. basis points
0
50
100
150
200
250
300
350
400
200920082007
Fannie Mae, Freddie Mac conservatorship (FHFA)
PPIP (Treasury)
Capital Purchase Program (CPP) (Treasury)
MBS Purchase Program (Treasury)
AIG stabilization (Fed, Treasury)
Bank debt, deposit insurance (TLGP, TAG) (FDIC)
HAMP (Treasury)
HARP (FHFA)
Bank Stress Tests (Fed)
CPFF (Fed)
TALF (Fed, Treasury)
Money market guarantees (Treasury)
AMLF (Fed)
TSLF (Fed)
PDCF (Fed)
Recovery Act (Obama)Stimulus Act (Bush)
TAF (Fed) TAF extension
Central bank swap lines (Fed) Swap lines expanded (Fed)
Quantitative Easing (Fed)
Fed Funds interest rate cuts (Fed)
Source: Libor-OIS: Bloomberg
Increasing Stress Early
Escalation
Breaking the Panic
and Resolution
U.S. STRATEGY
But the response became more forceful and comprehensive as the crisis
intensified and Congress provided new emergency authority.
Systemic
financial
policies
Monetary and
fiscal policies
Housing
International
27

29. U.S. STRATEGY
The U.S. government deployed a mix of systemic policies to stabilize
financial institutions and markets ...
Liquidity programs to keep financial institutions operating
and credit flowing to consumers and businesses.
Guarantee programs to support critical funding markets
for financial institutions.
Government interventions to prevent the failure
of systemic institutions.
Recapitalization strategies to address the solvency
questions hovering over the financial system.
28

30. U.S. STRATEGY
As the crisis intensified, the U.S.
government’s liquidity programs
expanded along several dimensions:
• Domestic to International
• Traditional to Novel
• Institutions to Markets
29

31. billion
0
100
200
300
400
500
$600 billion
0
100
200
300
400
500
$600
2010200920082007 2010200920082007
Sources: Federal Reserve Board; internal calculations
U.S. STRATEGY
The Federal Reserve initially deployed its traditional lender of last resort tools
to provide liquidity to the banking system ...
Federal Reserve discount window usage Term Auction Credit Facility (TAF) usage
Use of the
Fed’s discount
window
Term Auction
Credit Facility
Banks were reluctant to
borrow from the Fed’s
discount window over fear
it would signal they were in
financial trouble ...
... so the Fed
initiated TAF in
a similar role,
and opened it
to both
domestic and
foreign banks.
Foreign banks
U.S. banks
30

32. billion
0
100
200
300
400
500
$600 billion
0
100
200
300
400
500
$600
20102009200820072010200920082007
Source: Federal Reserve Board via Federal Reserve Economic Data Note: PDCF includes loans extended to select other broker-dealers.
U.S. STRATEGY
... and then expanded its tools to support dealers and funding markets.
Securities lent to dealers: Term Securities Lending Facility Primary Dealer Credit Facility (PDCF) loans
Term Securities
Lending Facility
Primary Dealer
Credit Facility
... and then created the
PDCF to provide
emergency liquidity to
investment banks, which
did not have access to
the discount window.
The Fed established the
TSLF to promote liquidity
in U.S. Treasury bonds
and other important
collateral markets ...
31

33. 0
3
6
9
12
15%
200920082007
Asset-Backed
Commercial Paper
(ABCP)
Commercial Paper
Source: Federal Reserve
U.S. STRATEGY
The Fed and Treasury also introduced programs to support the commercial
paper market, a key source of funding to financial institutions and businesses ...
Overnight issuance as a share of outstanding commercial paper
Commercial Paper Funding Facility (CPFF)
established by Fed, Oct. 7, 2008
Anxious investors
demanded ultra-short
terms for commercial
paper as concerns their
holdings were tainted by
troubled MBS caused
liquidity to evaporate.
Master Liquidity Enhancement Conduit (MLEC)
On Oct. 15, 2007, Treasury facilitates plan for private banks
to support the ABCP market; it is never implemented
BNP Paribas freezes three
funds over MBS concerns,
Aug. 9, 2007
AMLF and money market
guarantees Sept. 19, 2008
Fed establishes ABCP Money
Market Mutual Fund Liquidity
Facility; Treasury announces
temporary guarantee program
for money market mutual funds
Lehman Bankruptcy
Sept. 15, 2008
32

34. 0
10
20
30
40
50
60
$70
20112010200920082007
billion
Sources: Total issuance level: Bloomberg; amount pledged to TALF: Federal Reserve Board
U.S. STRATEGY
... and helped restart the asset-backed securitization market, an important
source of funding for credit cards, auto loans, and mortgage lending.
Asset-backed securities (ABS) issuance, TALF-eligible issuance, and amount pledged to TALF
TALF, which becomes operational in
March 2009, had an immediate effect
on restoring market function
PPIP, introduced in February 2009, also
supported the market
Lehman bankruptcy
After the firm’s collapse in
September 2008, the ABS
market was nearly frozen
Early crisis average
Post-TALF and PPIP average
ABS market nearly frozen
Total issuance level
Amount pledged to TALF
33

35. U.S. STRATEGY
The U.S. government put in place a
mix of guarantees to backstop critical
parts of the financial system.
34

36. DecemberNovemberOctoberSeptemberAugust 2008
– 150
– 120
– 90
– 60
– 30
0
+ 30
+ 60
+$ 90 billion
Sources: iMoneyNet; internal calculations based on“Runs on Money Market Mutual Funds,”American Economic Review
U.S. STRATEGY
Treasury agreed to guarantee about $3.2 trillion of money market fund assets
to stop the run on prime money market funds.
Daily U.S. money market fund flows
Prime institutional
money market funds flows
Lehman bankruptcy
Sept. 15, 2008
Reserve Primary Fund“breaks the buck”
Sept. 16, 2008 The fund held some
short-term Lehman debt that became
worthless after the bankruptcy
Treasury announces money
market fund guarantees
Sept. 19, 2008
Treasury opens guarantee program
Sept. 29, 2008
35

37. 0
100
200
300
400
500
600
700
800
$900
20112010200920082007
billion
... and mitigated
concerns that they
would abruptly
withdraw funds
from accounts,
which had often
exceeded the
$100,000 coverage
limit.
Increased coverage
gave consumers and
businesses more
confidence that their
money was safe ...
48
50
52
54
56
58
60
62%
Temporary
increase to
$250,000
$250,000
made
permanent
20112010200920082007
$100,000
FDIC insurance
coverage
U.S. STRATEGY
The FDIC expanded its deposit insurance coverage limits on consumer and
business accounts in an effort to prevent bank runs ...
Share of total deposits FDIC insured Amounts guaranteed by TAG Program
Sources: Federal Deposit Insurance Corp.,“Crisis and Response: An FDIC History, 2008–2013”;
U.S. Treasury Department,“Reforming Wall Street, Protecting Main Street”
FDIC-insured
deposits
53% 59%
FDIC guarantees non-interest bearing
accounts through the Transaction
Account Guarantee Program, Oct. 14, 2008
36

38. 0
50
100
150
200
250
300
350
$400 billion
20122011201020092008 200920082007
Nonbanks
Bank holding
companies
Traditional
banks 0
100
200
300
400
500 basis points
Bank CDS
spreads
FDIC bank debt
guarantees
Sources: Debt issuance: Federal Deposit Insurance Corp.; internal calculations; CDS spreads: Bloomberg
*Debt Guarantee Program covered debt issued by both the parent company and its affiliates
U.S. STRATEGY
. . . and by agreeing to guarantee new financial debt, the FDIC helped
institutions obtain more stable funding.
Senior unsecured U.S. bank debt issuance under TLGP (DGP)* Average-weighted CDS spread for six big banks
TLGP Debt Guarantee
Program introduced
Oct. 14, 2008
37

39. U.S. STRATEGY
The U.S. government moved to strengthen the capital in the financial system
as the crisis intensified and Congress provided emergency authority.
Encouraged the biggest institutions to raise private capital
early in the crisis.
Injected substantial government capital into the banking
system as the crisis worsened.
Stabilized the most troubled banks with additional capital and
asset ringfence guarantees.
Conducted stress tests to complete the recapitalization of the
financial system.
38

40. Private capital raised,
billions
Private capital raised
before government
investments
Jan. 1, 2007 to Oct. 13, 2008
33.5
25.9
$13.0
15.4
23.4
$0
4.1
8.5
State Street
BNY Mellon
Merrill Lynch
Morgan Stanley
Goldman Sachs
Wells Fargo
$43.2Citigroup
JPMorgan Chase
Bank of America
Common equity Preferred equity Other Tier 1
U.S. STRATEGY
As losses worsened early in the crisis, U.S. policymakers urged financial
institutions to raise private capital.
Private capital raised between Jan. 1, 2007 and Oct. 13, 2008, for the nine banks receiving initial government investments
Sources: Goldman Sachs; Bloomberg
BANKS
INVESTMENT BANKS
TRUST AND PROCESSING BANKS
39

41. Capital raised,
billions
35.0
25.0
$15.8
10.0
10.0
$3.0
2.0
37.7
$59.2
State Street
BNY Mellon
Merrill Lynch
Morgan Stanley
Goldman Sachs
Wells Fargo
JPMorgan Chase
Bank of America
Citigroup*
Government
preferred equity
Government Targeted
Investment Program capital
Government
and private
capital raised
Oct. 14, 2008 to
May 6, 2009$10 billion goes to Bank of America
after acquisition of Merrill Lynch
Private common equity
Private
preferred equity
Private
other Tier 1
U.S. STRATEGY
Then, as panic followed the collapse of Lehman Brothers, Treasury made large
capital investments in the biggest banks using new authority from Congress ...
Private and government capital raised between Oct. 14, 2008 and May 6, 2009, the day before stress test results were released
Source: Goldman Sachs
*Citigroup ultimately also converted approximately $58 billion of government and other preferred stock into common shares
BANKS
INVESTMENT BANKS
TRUST AND PROCESSING BANKS
40

42. 0
50
100
150
200
250
$300 billion
2014201320122011201020092008
By the end of 2008, more
than 200 banks had
received funds under the
Capital Purchase Program.
Overall, $205 billion would
be distributed to 707 banks.
An additional $40 billion
was split between Citigroup
and Bank of America under
the Targeted Investment
Program.
Government capital investments
in banks
Sources: Timeline of funds outstanding: TARP Tracker; banks receiving funds, by asset size: U.S. Treasury,“Troubled Asset Relief Program: Two Year
Retrospective”; banks receiving funds, by state: internal calculations based on TARP Investment Program transaction reports, August 8, 2018
U.S. STRATEGY
... and used additional funds to make direct government investments in
hundreds of smaller banks.
Prinicipal outstanding for government bank capital investments Distribution of banks receiving government capital investments
1 to 10
Less than
$1 billion
$1 to $10
billion
Over $10
billion
Banks receiving funds: by asset size
Banks receiving funds: by state
11 to 20 21 to 30 31 to 71
473 banks 177 57
41

43. Citigroup
CDS
spreads
0
100
200
300
400
500
600
700 basis points
2010200920082007
Treasury
$5.0 bil.
FDIC
$10.0 bil.
Citigroup
$39.5 bil.
Citigroup
$0.6 bil.
Citigroup
$1.1 bil.
Citigroup
$24.5 bil.
Fed
$220.4 bil.
Sources: Asset Guarantee Program terms: Special Inspector General for TARP,“Extraordinary Financial
Asisstance Provided to Citigroup, Inc.”; CDS spreads: Bloomberg
U.S. STRATEGY
The government expanded its tools with additional capital injections and asset
guarantees for the most troubled banks, Citigroup and Bank of America.
Asset Guarantee Program (AGP), Citigroup assets, and“ringfence”loss responsibility structure
Pool of Citigroup
assets:
$301 billion
Home
mortgage
loans
$175.1
billion
MBS,
commercial
real estate
$76.3
billion
1st Loss 2nd Loss 3rd Loss Tail Loss
Citigroup
AGP
announced
Nov. 24, 2008
Citigroup AGP
asset pool finalized
Nov. 17, 2009
Citigroup
exits AGP
and repays
TARP funds
Dec. 23,
2009
Other
42

44. 0
$50
$100
$150
$200 billion
2012201120102009
Source: U.S. Treasury Note: Repayments occurred over the lifetime of the commitment. Any reduction in the commitment, however, is
not reflected until the January 2011 recapitalization transaction.
U.S. STRATEGY
The government provided emergency loans, capital, and guarantees to AIG to
prevent a disorderly failure that would have disrupted the financial system.
Outstanding commitment to AIG
Fed establishes $85 billion credit
facility Sept. 16, 2008, taking an 79.9
percent equity stake in AIG
In fall of 2010, AIG spins off AIA subsidiary in
a $20.5 billion IPO and MetLife acquires
ALICO for $16.2 billion
Fed commits additional
$37.8 billion Oct. 8, 2008
$40 billion TARP investment from Treasury;
Fed authorizes Maiden Lane II and III to purchase
AIG’s mortgage-related assets, Nov. 10, 2008
Treasury commits $30 billion more;
Fed restructures its commitment, including a
$25 billion credit facility cut in exchange for
preferred stakes in AIG’s foreign life insurance
subsidiaries AIA and ALICO
Treasury cuts its
stake to 77% by
selling $5.8 billion in
stock, May 2011
In a series of stock sales,
Treasury cuts its AIG stake to 22%
March-Sept. 2012
Final securities sold
from Maiden Lane II
Feb. 28, 2012
Final securities
sold from
Maiden Lane III
August 2012
Government makes
$23 billion profit
after Treasury sells final
shares in AIG, Dec. 2012
Recapitalization closes, Jan. 14, 2011: Fed loans are
paid off and remaining interests transferred to
Treasury which receives 92% of AIG common stock;
(Maiden Lane II and III remain with Fed)
Government
committments to AIG
43

45. 0
2
4
6
8
10%
’10’00’90’80’70’60’50’40’30’20
$0.6 PNC Financial
$1.1 Fifth Third Bank
$1.8 KeyCorp
$1.8 Morgan Stanley
$2.2 SunTrust Banks
$2.5 Regions Financial
GMAC $11.5
Wells Fargo $13.7
Bank of America $33.9
BIGGEST CAPITAL RAISES NEEDED
SMALLER CAPITAL RAISES NEEDED
Citigroup $5.5 billion*
*$58.1 billion was raised by converting
preferred shares into equity
No additional capital was needed at
nine other intitutions
U.S. STRATEGY
As confidence in banks further eroded, government“stress tests”increased
transparency, helping regulators and investors make credible loss projections ...
Two-year historical loan-loss rates for commercial banks SCAP capital shortfall, May 7, 2009
9.1%
Fed’s loss estimates for the
stress test were higher than
peak losses in the Great Depression
Sources: Federal Deposit Insurance Corp.; Federal Reserve Board; International Monetary Fund
Note: The 19 largest bank holding companies at the time were subject to the Supervisory Capital Assessment Program (SCAP).
44

46. Private capital raised,
billions
Private capital raised
after stress test
results released
May 7, 2009 through
Dec. 31, 2010
25.4
$32.8
9.8
$0
6.9
—
$2.8
2.3
20.9
State Street
BNY Mellon
Merrill Lynch Acquired by Bank of America
Morgan Stanley
Goldman Sachs
Wells Fargo
Citigroup
JPMorgan Chase
Bank of America
Common equity Preferred equity Other Tier 1
U.S. STRATEGY
... and accelerated the return of private capital.
Private capital raised, May 7, 2009, through Dec. 31, 2010
Source: Goldman Sachs
BANKS
INVESTMENT BANKS
TRUST AND PROCESSING BANKS
45

47. 0
20
40
60
80
100
$120 billion
201620152014201320122011201020092008
U.S. STRATEGY
Indeed, the U.S. recapitalized its banking system more quickly and
aggressively than Europe.
Capital raised each year
Source: Goldman Sachs
U.S. Banks
~90% of 2008-16 capital was raised 2008-10
European Banks
~50% of 2008-16 capital was raised 2008-10
46

48. U.S. STRATEGY
Alongside programs designed to
address the systemic problems in the
financial system, the Fed and Treasury
put in place a forceful mix of monetary
policy and fiscal stimulus.
47

49. 0
’12’11’10’09’08’07
1
2
3
4
5
6% billion
–100
0
+ 50
– 50
+100
+150
+$200
’12’11’10’09’08’07
Fed funds target rate
Upper bound
Fed asset
purchases
10-year Treasury rate
Sources: Target rate: Federal Reserve Board; 10-year Treasury: Federal Reserve Board via Federal Reserve Economic Data;
monthly asset purchases: Haver Analytics
U.S. STRATEGY
As the Fed funds rate neared zero, the Fed made large-scale asset purchases to
drive down long-term interest rates — a policy known as quantitative easing.
Fed Funds target rate or range and 10-year Treasury rate Net asset purchases, monthly
Target range
QE 1 QE 2 QE 3QE 1 QE 2 QE 3
Treasuries
GSE debt
MBS
48

50. 0
+0.5
+1.0
+1.5
+2.0
+2.5
+3.0
+3.5
+4.0%
201220112010200920082007
Sources: Council of Economic Advisers; Congressional Budget Office; Bureau of Economic Analysis; calculations by Jason Furman
Note: $168 billion represents the combined stimulus from pre–Recovery Act measures through 2012.
U.S. STRATEGY
The U.S. passed the first fiscal stimulus very early in the crisis. But at
$168 billion, it was relatively small and needed time to take effect.
Quarterly effect of fiscal stimulus measures on GDP
Estimated impact on GDP
from fiscal legislation
Post-Recovery Act
Recovery Act
Pre-Recovery Act
Economic Stimulus
Act of 2008
Feb. 13, 2008
Supplemental
Appropriations Act
June 30, 2008
Housing and Economic
Recovery Act (HERA)
July 31, 2008
Unemployment Compensation
Extension Act Nov. 21, 2008
49

51. 0
+0.5
+1.0
+1.5
+2.0
+2.5
+3.0
+3.5
+4.0%
201220112010200920082007
Sources: Council of Economic Advisers; Congressional Budget Office; Bureau of Economic Analysis; calculations by Jason Furman
Note: $712 billion represents the stimulus from the Recovery Act through 2012.
U.S. STRATEGY
The Recovery Act of 2009 provided a larger mix — $712 billon — of temporary
tax cuts and spending increases, offsetting some but not all of the fall in GDP.
Quarterly effect of fiscal stimulus measures on GDP
American Recovery and
Reinvestment Act of 2009
Feb. 17, 2009
Estimated impact on GDP
from fiscal legislation
Post-Recovery Act
Recovery Act
Pre-Recovery Act
50

52. 0
+0.5
+1.0
+1.5
+2.0
+2.5
+3.0
+3.5
+4.0%
201220112010200920082007
Sources: Council of Economic Advisers; Congressional Budget Office; Bureau of Economic Analysis; calculations by Jason Furman
Note: $657 billion represents the combined stimulus from post–Recovery Act measures through 2012.
U.S. STRATEGY
A further $657 billion from a series of smaller post-Recovery Act measures
added to the level of economic support ...
Quarterly effect of fiscal stimulus measures on GDP
Estimated impact on GDP
from fiscal legislation
Post-Recovery Act
Recovery Act
Pre-Recovery Act
Supplemental
Appropriations Act
June 2009
Worker, Homeowner and
Business Assistance Act;
Defense Appropriations Act
Nov.-Dec., 2009
Temporary Extension Act;
Hiring Incentives to Restore
Employment Act March 2010
Continuing
Extension Act
April 2010
Unemployment Compensation Extension Act;
FAA Air Transportation; Small Business Jobs Act
July-Sept. 2010
VOW Act; Temporary
Payroll Tax Cut
Continuation Act
Nov.-Dec. 2011
Tax Relief Act Dec. 2010
Middle-Class Tax
Relief and Job
Creation Act
Feb. 2012
51

53. 2009
2001
1991
Average across
recessionary periods
from 1960-2007
During the recovery from the financial crisis,
however, state and local governments cut
spending sharply, working against federal efforts.
In past recessions,
state and local
governments
increased spending
during recoveries.
Years from trough
U.S. STRATEGY
... but even as the federal government ramped up stimulus, state and local
cutbacks worked against the effort.
Real state and local government purchases during recoveries, 1960-2015, indexed to quarterly level at trough
Sources: Bureau of Economic Analysis; internal calculations
Note: Average does not include the 1980 recession owing to overlap with the 1981–82 recession.
70
80
90
100
110
120
130
+8+7+6+5+4+3+2+10–1–2–3–4–5–6
52

54. U.S. STRATEGY
The government put in place
a series of housing programs:
• To lower mortgage rates and ensure the
availability of credit
• Help reduce mortgage foreclosures
• Help struggling borrowers refinance
mortgages to take advantage of lower rates
53

55. 0
1
2
3
4
5
6
7%
0
100
200
300
400
500
600
700,000
201620152014201320122011201020092008200720062005
Sources: Mortgage rates: Freddie Mac via Federal Reserve Economic Data; foreclosure completions: CoreLogic
U.S. STRATEGY
The government’s housing programs brought down mortgage rates and
reduced foreclosures but were not powerful enough to contain the damage.
30-year fixed mortgage rate Foreclosure completions, quarterly average of annual figure
Hope Now
Oct. 10, 2007
Treasury and HUD
facilitate creation
of private loan
modification
program
Home prices peak
July 2006
HAMP March 4, 2009, Treasury announces Home
Affordable Modification Program
HARP FHFA’s Home Affordable Refinance
Program begins, April 1, 2009
Fannie Mae, Freddie Mac
conservatorship Sept. 7, 2008
FHFA takes control of GSEs
MBS purchase program Treasury
announces plan to purchase securities,
also on Sept. 7
Quantitative easing Fed announces MBS purchase
plan known as QE1, Nov. 25, 2008
FDIC-IndyMac
modifications
Program implemented
Aug. 20, 2008, for failed
IndyMac Bank
Foreclosure
completions
30-year fixed
mortgage rate
Left scale
54

56. 0
50
100
150
200
250
$300 billion
0
50
100
150
200
250
300 basis points
201120102009200820072006
GSE MBS Left scale
Agency MBS spread Right scale
Private market MBS Left scale
Sources: MBS issuance: Securities Industry and Financial Markets Association; agency MBS spread: Bloomberg
U.S. STRATEGY
Government support of Fannie Mae and Freddie Mac kept mortgage credit
flowing and stabilized the housing market after private issuers pulled back.
Mortgage-related securities issuance Spread between FNMA 30-year current coupon MBS and 10-year Treasury
Fannie Mae, Freddie Mac
conservatorship Sept. 6, 2008
Senior Preferred Stock Purchase Agreements (SPSPAs)
GSEs receive capital backstop of up to $100 billion, Sept. 26
Fed QE 1 Fed announces it will buy
GSE debt and GSE-backed MBS, Nov. 25, 2008
First SPSPA Amendment increases commitment
to $200 billion per GSE, May 6, 2009
Second SPSPA Amendment
increases commitment
again, Dec. 24, 2009
55

57. 0
100
200
300
400
500
600
700,000
201620152014201320122011201020092008200720062005
FHA loss
mitigation
HAMP permanent
modifications
Private sector
modifications
Foreclosure
completions
Sources: Dept. of Housing and Urban Development (FHA loss mitigation); U.S. Treasury (HAMP modifications); HOPE Now Alliance (HOPE Now modifications;
CoreLogic (foreclosure completions, quarterly average of annual rate) Note: Modifications through Nov. 2016; other program results through 2016.
U.S. STRATEGY
Loan modification programs, including HAMP, directly or indirectly helped
nearly 9.9 million struggling homeowners with their mortgages.
Mortgages receiving modification aid, April 1, 2009, through November 30, 2016
Streamlined
administrative
processes, August
and October 2009
Revised HAMP rules, March 2010, to encourage some principal write-downs;
made FHA-issued mortgages eligible for servicer modification incentives
Established HAMP Tier 2,
October 2011, which facilitated
modifications for non-GSE borrowers
Streamline HAMP launched,
July 2013, which allowed
modifications for seriously
delinquent borrowers with
documentation limitations
Revised HAMP rules September 2010: Made unemployment insurance
eligible as available income; allowed homeowners to take 6-month
deferments of payments; increased servicer incentives; allowed for
modifications of 2nd liens; provided more flexibility on debt-to-income
determinations; included some investor-owned properties.
56

58. 0
100
200
300
400
500
600
700,000
201620152014201320122011201020092008200720062005
HARP
refinancings
Sources: Federal Housing Finance Agency; foreclosure completions: CoreLogic
U.S. STRATEGY
The HARP program lowered mortgage rates, encouraged refinancings, and
helped“underwater”homeowners avoid foreclosure.
Loans refinanced through the Home Affordable Refinancing Program
Foreclosure
completions
Raised loan-to-value ceiling,
July 2009, to allow somewhat deeper
underwater borrowers to refinance
Streamlined administrative
processes, August and October 2009
HARP 2.0, Oct. 2011, eased representation
and warranty requirements to increase
pool of eligible borrowers and increase
servicer participation
57

59. Other borrower assistanceLoan modifications
5.7 million9.2 million
0
2
4
6
8
10
12 million
PROGRAMS
HAMP All trial and
permanent loan
modifications
HOPE NOW
Proprietary
modifications
GSE FHFA
HAMP-like
modifications
through GSEs
PROGRAMS
FHFA HomeSaver
advance; repayment
plans; forbearance
plans; and
foreclosure
alternatives
FHA Loss mitigation
interventions
STATE AND LOCAL
HOUSING FINANCE
AGENCY INITIATIVES
Mortgages and
financed units
Through
2012
Through
2017
Special refinancings
9.5 million
PROGRAMS
HARP Completed
refinances
FHFA Streamline
refinances
FHA Streamline
refinances Through
2012
Through
2017
Through
2012
Through
2017
U.S. STRATEGY
The government’s programs helped millions of homeowners, but were slow to
take effect and reached a limited number of people threatened by foreclosure.
Homeowners assisted through crisis-era loan modification programs and other foreclosure prevention actions
Sources: Making Home Affordable program performance reports; HOPE NOW; Federal Housing Finance Agency foreclosure prevention reports and
refinance reports; U.S. Department of Housing and Urban Development housing scorecards; Federal Housing Finance Agency aggregate reports; Center
for American Progress,“A House America Bond for State Housing Finance Agencies”
58

60. U.S. STRATEGY
Even though the crisis started in the United States, its impact reverberated
around the world — and the response required U.S. policymakers to work
closely with their global counterparts to:
Establish central bank swap lines
to address dollar funding shortages
Coordinate monetary policy
to send powerful message to the markets
Arrange for IMF support
for emerging countries affected by the crisis
59

61. By Oct. 14, 2008, the Fed had
expanded currency swap lines to
essentially unlimited amounts with
four central banks: ECB, Switzerland
and the Banks of England and Japan.
Limited swap lines were arranged
with 10 other central banks:
billion
0
100
200
300
400
500
$600
Sources: Central bank liquidity swaps: Federal Reserve Board, internal calculations; maximum commitments:
National Bureau of Economic Research,“Central Bank Dollar Swap Lines and Overseas Funding Costs”
U.S. STRATEGY
The Federal Reserve established swap lines with more than a dozen foreign
central banks to ease funding pressures arising from a shortage of dollars.
Central bank liquidity swaps
Other
countries
Japan
ECB
Canada
Australia
Sweden
Brazil
Mexico
South Korea
Singapore
Denmark
Norway
New Zealand
Swap line limits
201020092008
Australia, Denmark,
Norway, Sweden
added Sept. 24, 2008
Japan, Bank of
England, Canada
added Sept. 18, 2008
Brazil, Mexico,
New Zealand,
South Korea, Singapore
added Oct. 28-29, 2008
Fed establishes swap
lines with the ECB
and Switzerland
Dec. 12, 2007
$30
$30
$30
$30
$30
$30
$30
Billions
$15
$15
$15
60

62. 20122011201020092008200720062005
0
1
2
3
4
5
6% target rate
United States
United Kingdom
Switzerland
Canada
European
Union
Japan
Source: Bloomberg
U.S. STRATEGY
The Federal Reserve and the world’s major central banks orchestrated a
coordinated interest rate cut.
Central bank target interest rates for each country (month-end)
On Oct. 8, 2008, the Fed
joins the European Central
Bank, the Bank of England,
and the central banks of
Canada, Sweden and
Switzerland in cutting
interest rates.
61

63. 0
20
40
60
80
100 billion SDRs
’17’16’15’14’13’12’11’10’09’08’07’06’05’04’03’02’01’00’99’98’97’96’95’94’93’92’91’90
Asian
financial
crisis
Global
financial
crisis
Source: International Monetary Fund
U.S. STRATEGY
The G-20 agreed in April 2009 to establish a $500 billion lending facility,
allowing the IMF to provide substantial aid to countries affected by the crisis.
IMF credit outstanding for all members
IMF expands emerging
market support by
$500 billion April 2009
Members agree to
establish a $500 billion
lending facility at G-20
summit held in London
62

64. Outcomes
63

65. %
21Peak 321 1Peak
–70
–60
–40
–30
–10
0
–50
–20
Peak
–25
–15
– 5
0%
–20
–10
–20
–15
– 5
0%
–10
Year later Year laterYear later
Sources: Stock prices: The Center for Research in Security Prices via Wharton Research Data Services; housing prices: U.S. home price and related data,
Robert J. Shiller, Irrational Exuberance; GD household wealth: Mishkin (1978); GR household wealth: Financial Accounts of the United States
OUTCOMES
The severity of the stress of the 2008 financial crisis was, in some respects,
worse than in the Great Depression.
Stock market prices from peak Nominal house prices from peak Decline in household wealth
Stock market House prices
3 years
from peak
Household
wealth
1 year
from peak
Financial
Crisis
–57.8%
Financial
Crisis
–18.3% Financial
Crisis
–14.8%
Great
Depression
–42.7%
Great
Depression
–6.2%
Great
Depression
–6.0%
64

66. 2010200920082007
0
100
200
300
400
500 basis points
Bank CDS spreads
Source: Bloomberg Note: Credit default swap spreads are equal-weighted averages of JPMorgan Chase,
Citigroup, Wells Fargo, Bank of America, Morgan Stanley, and Goldman Sachs.
OUTCOMES
The U.S. government response ultimately stopped the panic
and stabilized the financial system ...
Bank CDS spreads and Libor-OIS spread
Libor-OIS spread
65

67. 0
1
2
3
4
5
6
$7trillion
201020092008
–6
–4
–2
0
+2
+4
+6%
OUTCOMES
. . . and allowed the economy to slowly begin digging out of a
deep recession.
Treasury, Federal Reserve, and FDIC exposures; real GDP and employment, year-over-year percent change (monthly)
Sources: U.S. government exposures: U.S. Treasury, Federal Reserve Board; Federal Deposit Insurance Corp.; Federal Housing Finance Agency;
Congressional Oversight Panel,“Guarantees and Contingent Payments in TARP and Related Programs”via Federal Reserve Bank of St. Louis; internal
calculations. Real GDP: Macroeconomic Advisers; Haver Analytics. Employment: Bureau of Labor Statistics; internal calculations
Government
commitments
Left scale
Guarantees
Other programs
TARP
Fed liquidity
Real GDP
Year-over-year
change Right scale
Employment
Year-over-year
change Right scale
66

68. 0
100
200
300
400
500
600
700 basis points
2010200920082007
+80
+60
+40
+20
0
–20%
2007 2008 2009 2010
Sources: ABS: J.P. Morgan. Lending standards: Federal Reserve Board, senior loan officer opinion survey on bank lending practices
OUTCOMES
The response helped restart the credit markets and bank lending so that
financing was once again cheaper and easier to obtain.
Consumer asset-backed security (ABS) spreads Net respondents tightening standards
Credit less
available
Credit more
available
AAA
credit card
ABS spread
AAA auto
ABS spread
67

69. 0
1
2
3
4
5%
2013201220112010200920082007 2013201220112010200920082007
100
120
140
160
180
200
OUTCOMES
The surge in housing foreclosures stabilized and began to decline,
and home prices eventually began to recover.
Foreclosures as a percent of total loans S&P CoreLogic Case-Shiller U.S. National Home Price Index
Sources: Foreclosure inventory: Mortgage Bankers Association, Bloomberg; home price index: S&P CoreLogic
Case-Shiller U.S. National Home Price Index, not seasonally adjusted, via Federal Reserve Economic Data
Foreclosure
inventory
Home prices
Jan. 2000 = 100
68

70. –10
– 5
0
+ 5
+10
+15
+20
+25%
+10+9+8+7+6+5+4+3+2+10–1–2–3
2008
2001
1990
1981
Employment fell
much more during
the 2008 crisis than
in other recent
recessions.
Job growth resumed at about the same rate
as the recovery from the 2001 recession, and
has lasted for more than eight years.
Years since
employment trough
OUTCOMES
U.S. job growth rebounded, although it was slower than
after other recent recessions.
Change in total nonfarm employment, percentage from trough
Source: Bureau of Labor Statistics
69

71. – 10
0
+10
20
+30
+40
+50%
109876543210
2007 Q4
2001
1990
1981-82
Years after GDP peak
OUTCOMES
The pace of the recovery in the U.S. was slow, as is typical following
a severe financial crisis.
Percentage change in real GDP from peak
Source: Bureau of Economic Analysis via Federal Reserve Economic Data
70

72. –10
– 8
– 6
– 4
– 2
0
+ 2
+ 4
+ 6%
201320122011201020092008
Germany
United Kingdom
Italy
Spain
France
OUTCOMES
... although growth has been stronger than in many European countries.
Real GDP, percentage change from 4th quarter 2007
Source: Organisation for Economic Co-operation and Development
United States
71

73. OUTCOMES
Financial crises are typically costly to economic output, but the U.S. strategy
was able to limit the damage compared to other crises.
Sources: National Bureau of Economic Research,“Recovery from Financial Crises: Evidence from 100 Episodes”; Bureau of Economic
Analysis via Federal Reserve Economic Data, internal calculations
Decline in output peak to trough
(real GDP per capita)
How bad was the drop in GDP?
63 financial crises in
advanced economies,
1857 to 2013
–9.6%
U.S. financial crisis
Duration of recession
How long was the recession?
2.9
years
1.5
years
Recovery of output to
previous peak
How fast was the recovery?
7.3
years
5.5
years
–5.25%
72

74. OUTCOMES
In fact, U.S. taxpayers made a profit on the financial rescue.
Income or cost of financial stability programs, in billions
Sources: U.S. Treasury; Federal Deposit Insurance Corp.; Federal Reserve Board; Federal Housing Finance Agency; Congressional Research Service,
“Costs of Government Interventions in Response to the Financial Crisis: A Retrospective.”
Notes: All figures are reported on a nominal basis. GSE debt purchases as of end of Q3 2013.
Capital Investments
GSEs
AIG
CPP
Citigroup
Bank of America
GMAC/Ally
CDCI
Chrysler Financial
Chrysler
GM
Liquidity/Credit Markets
GSE Debt Purchases
CPFF
TAF
PPIP
TALF
TSLF
ML
PDCF
ABCP/MMLF
Section 7a
+$12.9
6.1
4.1
3.9
2.1
0.8
0.8
0.6
0.5
0.0
Guarantee Programs
TLGP/DGP
MMF Guarantee
TAG
+$10.2
1.2
–0.9
FDIC Resolution
Cumulative Income,
2008-10
DIF Losses, 2008-10
+$94.3
22.7
21.5
6.6
3.1
2.4
0.3
0.0
–1.3
–10.5
+$45.4
–77.5
73

75. –12.7%
of GDP
–10.0%
of GDP
–2.4%
of GDP
+0.78%
of GDP
–14
– 8
– 6
0
– 2
– 4
+ 2%
–10
–12
IMF estimate of
the cost of U.S.
response to the
2008-9
Financial Crisis
Average cost of
recent crises in
emerging and
developed
countries
Cost of the U.S.
savings and
loan crisis
Total direct
financial return
to the taxpayer
from the
financial rescue,
2007-16
OUTCOMES
Compared to initial projections and prior crises, the U.S. response was
more effective for the taxpayer ...
Direct fiscal cost/revenue of financial crisis situations, as a share of GDP
Sources: Average of recent crises: National Bureau of Economic Research,“Recovery from Financial Crises: Evidence from 100 Episodes”; IMF: International
Monetary Fund,“Companion Paper — The State of Public Finances: Outlook and Medium-Term Policies After the 2008 Crisis”; savings and loan crisis: Federal
Deposit Insurance Corp.,“The Cost of the Savings and Loan Crisis: Truth and Consequences”, Bureau of Economic Analysis; U.S. 2007-2016: Federal Reserve
Board, U.S. Treasury Department, Federal Housing Finance Agency, Federal Deposit Insurance Corp., Bureau of Economic Analysis, internal calculations
74

76. United
States
+0.78%
France
+0.05%
Italy
–0.19%
United
Kingdom
–0.63%
Germany
–1.39%
EU
–1.75%
–2.0
–1.0
–0.5
0
+0.5
+1.0%
–1.5
OUTCOMES
... especially relative to the cost of interventions taken by other
governments during the global financial crisis.
Cumulative direct fiscal revenues/cost of financial crisis interventions, 2007-16, as a share of each country’s 2016 GDP
Sources: Eurostat; U.S. Treasury; Federal Deposit Insurance Corp.; Federal Reserve Board; Federal Housing Finance Agency;
Bureau of Economic Analysis; internal calculations
75

77. Bank holding companies
with more than
$500 billion in assets
All institutions
Bank capital levels
0
2
4
6
8
10
12
14 %
20172016201520142013201220112010200920082007200620052004200320022001
Long after the financial
crisis, banks have continued
to increase their capital,
pushed in large part by
more stringent regulatory
requirements.
OUTCOMES
Today the financial system has significantly more capital and would be
better able to withstand losses in the event of a severe economic downturn.
CET1 and Tier 1 common equity as percent of risk-weighted assets
Source: Federal Reserve Bank of New York‘s Research and Statistics Group Note: Capital ratio is based on tier 1 common
equity pre-2014 and common equity tier 1 (CET1) as of 2015, and is a combination of the two during 2014.
76

78. $31.8 trillion total financial assets $33.5 trillion total financial assets
GSEs remain under
government
conservatorship
OUTCOMES
Stronger regulations on risk are applied to a much broader share of the U.S.
financial system.
Source: Federal Reserve Financial Accounts of the United States
$13.0 trillion
Depository
Institutions
$18.8 trillion
Depository
Institutions
$7.4 trillion
Government Sponsored
Enterprises
$8.8 trillion
Government
Sponsored
Enterprises
$4.6 trillion
Asset-Backed
Securities
$3.2 trillion
Broker-Dealers
$1.2 tn
ABS
$1.5 tn
Fin. Co.’s
$4.7 trillion
Broker-
Dealers
$1.9 tn
Finance
Co.’s
No leverage restrictions
Q4 2007
41% of the financial system
faced leverage restrictions
Q4 2017
92% of the financial system
faced leverage restrictions
77

79. OUTCOMES
Nonetheless, the emergency authorities available in the U.S. are still too limited
to allow an effective response to a severe crisis.
• Limited reach of prudential limits on
leverage
• Limited protections from deposit
insurance
• Poor emergency authority
• No ability to inject capital into banks
• No resolution authority for largest banks
or investment banks
• No authority to stabilize GSEs
PRE-CRISIS TOOLS
• Fed emergency lending
• Broader FDIC guarantees
• GSE conservatorship
• Capital injections
ESSENTIAL CRISIS AUTHORITIES
• Much stronger capital requirements
• Much stronger liquidity requirements
• Much stronger funding requirements
• Resolution authority for large financial
failures
POST-CRISIS TOOLS
• Limitations on Fed emergency lending
• No emergency FDIC guarantees without
Congressional action.
• No authority to inject capital
POST-CRISIS LIMITATIONS
78

80. OUTCOMES
This was a terribly damaging crisis. It did not need to be that bad.
The damage illustrates the costs of running a
financial system with weak oversight, and of going
into a crisis without the essential tools for
aggressive early action to prevent disaster.
The recovery was slow and fragile, made slower by
the premature shift to tighter fiscal policy.
Even after repairing the immediate damage, the
U.S. economy still faces a number of longer-term
challenges, with causes that predated the crisis.
79

81. We wish to thank the following individuals and organizations:
Brookings/Hutchins: David Wessell, Director; Jeffrey Chang, Vivien Lee
Yale Program for Financial Stability: Andrew Metrick, Program Director; Alec Buchholtz, Anshu Chen, Greg Feldberg,
Aidan Lawson, Christian McNamara, David Tam, Daniel Thompson, Chase Ross, Rosalind Z. Wiggins
Golden Triangle Strategies: Emily Cincebeaux, Bill Marsh, Melissa Wohlgemuth
Others: Charlie Anderson, Matthew Anderson, Christie Baer, Michael S. Barr, Monica Boyer, Jason Furman, Robert Jackson,
Annabel Jouard, Katherine Korsak, Vivek Manjunath, Drew McKinley, Patrick Parkinson, Wilson Powell III, Ernie Tedeschi
Data sources: CoreLogic®, a property data and analytics company: Goldman Sachs; HUD; iMoneyNet; JPMorgan Chase; SIFMA
This chart book was produced as part of an effort led by Ben S. Bernanke, Timothy F. Geithner, and Henry M. Paulson Jr. to
examine the U.S. government’s interventions in the 2007-09 financial crisis, a joint project of the Yale School of Management,
Program on Financial Stability and Brookings Institution, Hutchins Center on Fiscal and Monetary Policy.
Chart Book Project Advisors: Timothy F. Geithner and Nellie Liang
Chart Book Project Director: Eric Dash Data Visualization: Seth W. Feaster Project Manager: Deborah McClellan
Lead Data Analyst: Ben Henken
Acknowledgments
80

82. Slide 6:
Re-created with data underlying Figure 10,“The Distribution of Household Income, 2014,”Congressional Budget Office (2018),
https://www.cbo.gov/publication/53597. See link for definitions of income and income groups.
Slide 7:
Based on Figure 1, Panel 1, Michael Ahn, Michael Batty, and Ralf Meisenzahl,“Household Debt-to-Income Ratios in the Enhanced
Financial Accounts,”FEDS Notes. Washington: Board of Governors of the Federal Reserve System, January 11, 2018,
https://doi.org/10.17016/2380-7172.2138.
Slide 12:
Based on Figure 3.1, U.S. home price and related data, Robert J. Shiller, Irrational Exuberance, 3rd edition, Princeton University
Press, 2015, as updated by the author, http://www.econ.yale.edu/~shiller/data.htm.
Slide 14:
Based on Exhibit 1, Gary Gorton and Andrew Metrick,“Who Ran on Repo?”(2012),
http://faculty.som.yale.edu/garygorton/documents/whorancompleteoctober4.pdf.
Slide 30:
Based on charts 5 and 6, William English and Patricia Mosser,“Classic Lender of Last Resort Programs,”Preliminary Discussion
Draft, September 11–12, 2018, https://som.yale.edu/the-global-financial-crisis.
Notes

83. Slide 32:
Based on Figure 7, Lorie Logan, William Nelson, Patrick Parkinson,“Novel Lender of Last Resort Programs,”Preliminary Discussion
Draft, September 11–12, 2018, https://som.yale.edu/the-global-financial-crisis.
Slide 33:
Based on Figure 11, Lorie Logan, William Nelson, Patrick Parkinson,“Novel Lender of Last Resort Programs,”Preliminary Discussion
Draft, September 11–12, 2018, https://som.yale.edu/the-global-financial-crisis.
Slide 35:
Based on Panel A, Lawrence Schmidt, Allan Timmermann, and Russ Wermers,“Runs on Money Market Mutual Funds,”American
Economic Review, 106 (9): 2625-57, 2016, https://www.aeaweb.org/articles?id=10.1257/aer.20140678.
Slide 36:
Left panel: Based on Slide 4,“Reforming Wall Street, Protecting Main Street,”U.S. Treasury, July 2012,
https://www.treasury.gov/connect/blog/Documents/20120719_DFA_FINAL5.pdf. RIght panel: Based on Figure 2.4 in“Crisis and
Response: An FDIC History, 2008–2013,”Federal Deposit Insurance Corp. (2017).
Slide 37:
Traditional banks include depository institutions and associated pooled funding trusts. Bank holding companies include bank
holding companies, savings and loan holding companies, financial holding companies, and their funding affiliates. Nonbanks
include nonbank entities and their affiliates.
Notes

84. Slide 43:
Based on U.S. Treasury data and AIG infographic and timeline,
https://www.treasury.gov/initiatives/financial-stability/TARP-Programs/aig/Pages/default.aspx.
Slides 49, 50, 51:
Based on Figure 3, Jason Furman,“Fiscal Policy,”Preliminary Discussion Draft, September 11–12, 2018,
https://som.yale.edu/the-global-financial-crisis.
Slide 55:
Monthly mortgage-related securities issuance figures may not match annual figures reported by the Securities Industry and Financial
Markets Association on its website owing to a methodological difference in the reporting of each series.
Slide 56:
Based on the figure“Mortgage Aid Extended More than 9.9 Million Times, Outpacing Foreclosures,”December 2016 Housing
Scorecard, https://www.hud.gov/sites/documents/SCORECARD_2016_12_508C.PDF.
Slide 58:
Based on Table 2, “Housing Programs,”forthcoming paper, Michael Barr, Neel Kashkari, Andreas Lehnert, and Phillip L. Swagel,
September 11–12, 2018, https://som.yale.edu/the-global-financial-crisis. Some homeowners may have participated in more than one
program; the sum of homeowners helped across all categories does not necessarily reflect the number of unique borrowers helped.
Notes

85. Slide 62:
Maximum commitments were taken from Table 2, Linda S. Goldberg, Craig Kennedy, and Jason Miu“Central Bank Dollar Swap Lines
and Overseas Dollar Funding Costs,”NBER working paper 15763, (2010), http://www.nber.org/papers/w15763.pdf.
Slide 64:
The stock market is measured by total market value as reported by the Center for Research in Security Prices and is shown to financial
crisis trough. House prices are shown to three years after peak. Household wealth is a comparison between the change in the annual
average (in nominal terms) of household wealth from 1929 to 1930, and the change in the nominal level of household wealth from
Q1 2008 to Q1 2009.
Estimates of real household net worth (wealth) during the Great Depression were taken from Table 1, Frederic S. Mishkin,“The
Household Balance Sheet and the Great Depression,”The Journal of Economic History, Vol. 38, No. 4 (December 1978), pp. 918-937,
https://www.jstor.org/stable/2118664.
Slide 66:
Guarantees: Reflects the U.S. Treasury’s maximum commitments under the Temporary Guarantee Program for Money Market Funds
and the FDIC’s maximum commitments under the two components of the Temporary Liquidity Guarantee Program, the Debt
Guarantee Program, and the Transaction Account Guarantee Program.
Troubled Asset Relief Program (TARP): Reflects principal outstanding for TARP programs including bank support programs, credit
market programs, auto industry support, assistance to American International Group, and housing programs.
Notes

86. Federal Reserve Liquidity Programs: Reflects loan amounts outstanding under credit and liquidity programs established by the
Federal Reserve Board. These include discount window lending (primary credit, secondary credit, and seasonal credit), term auction
credit, the Primary Dealer Credit Facility, the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Term
Asset-Backed Securities Loan Facility, the Commercial Paper Funding Facility, and central bank liquidity swaps. Also reflects the value
of outstanding securities lent through the Term Securities Lending Facility.
Other Programs: Reflects the Federal Reserve, FDIC, and Treasury’s commitments under the Asset Guarantee Program; Federal Reserve
Board assistance to Maiden Lane companies and support to American International Group; Treasury support for Fannie Mae and
Freddie Mac through the senior preferred stock purchase agreements, as well as the face value of Treasury’s total mortgage-backed
securities (MBS) portfolio at the end of each month, from October 2008 to March 2012.
Notes