In late 2008, when secondary market spreads had spiked and risk aversion was high, investors were uncertain as to when and how the market would stabilize. Non-recourse lending helped place a floor on investor losses, thus increasing market confidence broadly and facilitating the return of structured product investors. 2  Source: Morgan Markets. Note: This includes securitizations of auto loans and leases, credit card account balances, student loans, dealer floorplan loans, and business equipment loans and leases. Second, TALF loans have considerably longer maturities than the lending from the Federal Reserve’s discount window and its other temporary liquidity facilities. The term of the loans, which were either three or five years, was intended to more closely match the maturity of the underlying securities, as needed to encourage investors to return to the market. In addition, loans with longer terms were viewed as more effective, as financing would extend well beyond the expected end of the recession. The combination of these two elements – non-recourse loans and long maturities – was critical to the success of program. Without one or the other, investors would have had exposure to short-term swings in risk premiums in a time of extreme volatility, which would have likely limited participation and thus reduced the program’s effectiveness. A third notable feature of the TALF was that it was available to a wide set of market participants beyond the Federal Reserve’s traditional bank counterparties. This feature reflected the program’s broad focus on a financial market rather than a particular set of financial firms.

The European Central Bank has cut its policy rate from 4.25 per cent in autumn 2008 to 1.25 per cent and the Riksbank has cut the repo rate from 4.75 per cent to 0.5 per cent. A number of other central banks have implemented similar monetary policy easing with the aim of stimulating demand and alleviating the repercussions of the financial crisis on production and employment. In addition to the interest rate cuts, some central banks have implemented what is known as unconventional measures. The purpose has been to secure the supply of credit and to counteract the threats to financial and macroeconomic stability. The central banks have contributed large liquidity injections, that is, lent money to the banks against collateral. Several central banks have also provided emergency liquidity assistance to individual institutions. The Federal Reserve, the European Central Bank and a number of other central banks have also lent money to other central banks through what are known as swap agreements to increase the access to foreign currencies in some other countries. Governments have offered guarantees and capital injections to reduce the risk of further bankruptcies in the domestic banking sector. Another important measure to reinforce confidence in the world economy is the decision at the G20 meeting in London at the beginning of April to increase the IMF’s resources to provide assistance to emerging economies experiencing problems. The measures taken by central banks and governments around the world so far have contributed to reducing the pressure on the interbank markets.