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LATE  TO EARLY : BILLIONS IN SUBPRIME LOSSES 

cult for businesses and consumers to get credit, raising the Fed’s concerns. From July
to October, the percentage of loan officers reporting tightening standards on prime
mortgages increased from  to about . Over that time, the percentage of loan
officers reporting tightening standards on loans to large and midsize companies in-
creased from  to , its highest level since .  “The Federal Reserve pursued
a whole slew of nonconventional policies . . . very creative measures when the dis-
count window wasn’t working as hoped,” Frederic Mishkin, a Fed governor from
 to , told the FCIC. “These actions were very aggressive, [and] they were ex-
tremely controversial.”  The first of these measures, announced on December ,
was the creation of the Term Auction Facility (TAF). The idea was to reduce the dis-
count window stigma by making the money available to all banks at once through a
regular auction. The program had some success, with banks borrowing  billion by
the end of the year. Over time, the Fed would continue to tweak the TAF auctions, of-
fering more credit and longer maturities.
Another Fed concern was that banks and others who did have cash would hoard
it. Hoarding meant foreign banks had difficulty borrowing in dollars and were there-
fore under pressure to sell dollar-denominated assets such as mortgage-backed secu-
rities. Those sales and fears of more sales to come weighed on the market prices of
U.S. securities. In response, the Fed and other central banks around the world an-
nounced (also on December ) new “currency swap lines” to help foreign banks
borrow dollars. Under this mechanism, foreign central banks swapped currencies
with the Federal Reserve—local currency for U.S. dollars—and lent these dollars to
foreign banks. “During the crisis, the U.S. banks were very reluctant to extend liquid-
ity to European banks,” Dudley said.  Central banks had used similar arrangements
in the aftermath of the / attacks to bolster the global financial markets. In late
, the swap lines totaled  billion. During the financial crisis seven years later,
they would reach  billion.
The Fed hoped the TAF and the swap lines would reduce strains in short-term
money markets, easing some of the funding pressure on other struggling participants
such as investment banks. Importantly, it wasn’t just the commercial banks and
thrifts but the “broader financial system” that concerned the Fed, Dudley said. “His-
torically, the Federal Reserve has always tended to supply liquidity to the banks with
the idea that liquidity provided to the banking system can be [lent on] to solvent in-
stitutions in the nonbank sector. What we saw in this crisis was that didn’t always
take place to the extent that it had in the past. . . . I don’t think people going in really
had a full understanding of the complexity of the shadow banking system, the role of
[structured investment vehicles] and conduits, the backstops that banks were provid-
ing SIV conduits either explicitly or implicitly.” 
Burdened with capital losses and desperate to cover their own funding commit-
ments, the banks were not stable enough to fill the void, even after the Fed lowered
interest rates and began the TAF auctions. In January , the Fed cut rates again—
and then again, twice within two weeks, a highly unusual move that brought the fed-
eral funds rate from . to ..