The Fed's response to the financial crisis: Pages from the BOJ playbook, or a whole new ball game?

Kutter, Kenneth N.

Like the Bank of Japan (BOJ) a decade ago, the U.S. Federal Reserve (Fed) has recently taken a number of unprecedented steps to stabilize its foundering financial system. This paper describes the Fed's and the BOJ's responses to their countries' crises, highlighting the similarities and differences between the two banks' policies. Both banks acted as lenders of last resort, providing the short-term funding necessary to prevent full-blown liquidity crises. Circumstances compelled the Fed to act much more quickly than the BOJ, however. And, in its direct involvement in the provision of credit to the private sector and its assumption of banks' credit risk, the Fed has intervened in the financial markets more extensively than the BOJ. Disparities in the speed and scope of the two countries' crises help explain the Fed's relatively more aggressive response. The more heavily securitized financial structure in the U.S. and the Fed's relaxed stance on credit risk also may account for the Fed's more interventionist policies.

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Academic Units
Center on Japanese Economy and Business
Center on Japanese Economy and Business, Graduate School of Business, Columbia University
Center on Japanese Economy and Business Working Papers, 282
Published Here
February 15, 2011