Question

One emergency lending procedure put into place in 2008 was the creation of the Term Securities Lending Facility. This entity was set up to?

1) lend up to 50 billion of Treasury securities to primary securities dealers for a fee.
2) lend up to 200 billion of Treasury securities to primary securities dealers for a fee.
3) lend funding to the Money Market Investor Funding Facility
4) lend funding to any commercial bank that needed it.

Answer 1

The Term Securities Lending Facility was set up to lend up to 200 billion of Treasury securities to primary securities dealers for a fee, aimed at providing liquidity during the 2008 financial crisis. Hence, the correct answer is option 2.

Step-by-step explanation:

The creation of the Term Securities Lending Facility (TSLF) in 2008 was one of the emergency measures taken during the financial crisis. This facility was established by the Federal Reserve to provide liquidity to the financial markets. The correct answer to the student's question is that the TSLF was set up to lend up to 200 billion of Treasury securities to primary securities dealers for a fee.

This lending was aimed at stabilizing the securities market by allowing dealers to access much-needed treasury securities in exchange for other less liquid assets. This was part of a broader set of actions, including open market operations and quantitative easing, aimed at ensuring the functioning of the financial system.