Article

Emergency Lending by the Federal Reserve

Richard Clarida

C. Lowell Harriss Professor of Economics and International Affairs, Columbia University. Prof. Clarida served as Vice Chair of the Federal Reserve Board of Governors from 2018 to 2022.

Kathryn Judge

Harvey J. Goldschmid Professor of Law, Columbia Law School

The authors are grateful to Mark Van Der Weide, Randal Quarles, Kim Schoenholtz, Stephen Cecchetti, Steven Kelly, Bill Nelson and Gary Richardson and to participants at the Chicago Legal Forum, the Wharton Conference on Financial Regulation, the Yale YPFS Fighting a Financial Crisis 2025 Conference, the Law & Finance Workshop Series, the BYU Deals Conference 2025 and the American Law and Economics Association Annual Meeting for helpful comments on earlier drafts. Alex MacDonald provided exceptional research assistance and all of the dedicated editors at The University of Chicago Legal Forum provided helpful feedback and suggestions throughout the editing process.

The Federal Reserve established an array of innovative emergency lending facilities during the Great Financial Crisis and expanded the scope of its emergency lending yet further in response to the Covid-19 pandemic. This Article provides a retrospective of how the Federal Reserve used its emergency lending authority across these two episodes, identifying patterns and revealing some differences. It sheds light on the conditions that enabled the Federal Reserve to establish the facilities that it did, including the roles played by Congress and Treasury in providing the equity funding that made certain facilities possible. It shows how in each episode, the Federal Reserve supported a whole-of-government response meant to limit the damage inflicted by a massive shock to the economy while still maintaining its independence with respect to monetary policy.

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