With the IMF predicting a severe economic downturn, the Bank of England makes the biggest interest rate cut in its history, slashing rates by 1.5 percentage points to 3 per cent, their lowest level in 53 years. That includes buying up to $600bn of mortgage bonds of government-sponsored housing enterprises such as Fannie Mae and Freddie Mac, and lending up to $200bn to holders of AAA-rated securities backed by auto, credit card and other loans. November 2008 The Fed pledges $800bn to try to kickstart the financial system. Shock to the system: an employee of Lehman Brothers carrying belongings out of its offices following the bank’s collapse © Chris Hondros/Getty Images It also cuts interest rates by half a percentage point, as does the European Central Bank.
The Bank of England launches a scheme to guarantee short-maturity bank debt. To try to shore up money-market mutual funds, which have come under severe redemption pressure, forcing them to cut short-term lending to banks, it also announces it will finance up to $540bn in purchases of their short-term debt. October 2008 With the financial system in turmoil, the Fed lifts the cap on swap lines with other major central banks and cuts the fed funds rate to 1 per cent. It also approves applications by Goldman Sachs and Morgan Stanley to become bank holding companies and allows them to access emergency loans, and lends up to $85bn to insurer AIG in return for a government stake of 79.9 per cent. September 2008 As the financial crisis deepens and investment bank Lehman Brothers files for bankruptcy, the US Federal Reserve broadens the collateral that can be pledged by primary dealers seeking overnight loans, extends swap lines with other central banks and increases the size of its Term Auction Facility. Taken together, it is the central bank’s most aggressive easing of monetary policy since the early 1980s. January 2008 After criticism that it is behind the curve in its response to the growing financial crisis, the Fed cuts the fed funds rate by 75 basis points to 3.5 per cent, and eight days later by 50 basis points to 3 per cent, in an effort to stave off recession. Auctions are extended “for as long as necessary”. December 2007 The Federal Reserve’s first Term Auction Facility auction takes place, designed to ease a liquidity shortage among commercial banks.
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