Primary Dealer Credit Facility

On March 17, 2008, in response to the subprime mortgage crisis and the collapse of Bear Stearns, the Federal Reserve announced the creation of a new lending facility, the Primary Dealer Credit Facility (PDCF). Eligible borrowers include all financial institutions listed as primary dealers, and the term of the loan is a repurchase agreement, or "repo" loan, whereby the broker dealer sells a security in exchange for funds through the Fed's discount window. The security in question acts as collateral, and the Federal Reserve charges an interest rate equivalent to the Fed's primary credit rate. The facility was intended to improve the ability of broker dealers to access liquidity in the overnight loan market that banks use to meet their reserve requirements. The creation of the Primary Dealer Credit Facility constitutes the first time in the history of the Federal Reserve that the Fed has lent directly to investment banks, and it reflects the severity of the financial crisis perceived by Federal Reserve Chairman Ben Bernanke. Non-bank institutions such as investment banks exist outside the Fed's regulatory structure. A full detail of the nominal value of loans outstanding through the PDCF is available in the Federal Reserve's public balance sheet. During the first three days the facility was open, an average of $13.3 billion was borrowed daily with $28.8 billion in loans outstanding. Lending activity peaked in the first week of October 2008, averaging around $150 billion daily. The facility closed on February 1, 2010. According to the Federal Reserve, all loans extended under this facility were repaid in full, with interest, in accordance with the terms of the facility. In total, $8.95 trillion in loans were made through the Facility. Changes to the Facility