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 FINANCIAL CRISIS INQUIRY COMMISSION REPORT

agency mortgage–backed securities. Typically, if a fund takes possession of such col-
lateral, it liquidates the securities immediately, even—as was the case during the cri-
sis—into a declining market. As a result, funds simply avoided lending against
mortgage-related securities. In the crisis, investors didn’t consider secured funding to
be much better than unsecured, according to Darryll Hendricks, a managing director
and global head of risk methodology at UBS, as well as the head of a private-sector
task force on the repo market organized by the New York Fed. 
As noted, the Fed had announced a new program, the Term Securities Lending
Facility (TSLF), on the Tuesday before Bear’s collapse, but it would not be available
until March . The TSLF would lend a total of up to  billion of Treasury securi-
ties at any one time to the investment banks and other primary dealers—the securi-
ties affiliates of the large commercial banks and investment banks that trade with the
New York Fed, such as Citigroup, Morgan Stanley, or Merrill Lynch—for up to 
days. The borrowers would trade highly rated securities, including debt in govern-
ment-sponsored enterprises, in return for Treasuries. The primary dealers could then
use those Treasuries as collateral to borrow cash in the repo market. Like the Term
Auction Facility for commercial banks, described earlier, the TSLF would run as a
regular auction to reduce the stigma of borrowing from the Fed. However, after
Bear’s collapse, Fed officials recognized that the situation called for a program that
could be up and running right away. And they concluded that the TSLF alone would
not be enough.
So, the Fed would create another program first. On the Sunday of Bear’s collapse,
the Fed announced the new Primary Dealer Credit Facility—again invoking its au-
thority under () of the Federal Reserve Act—to provide cash, not Treasuries, to
investment banks and other primary dealers on terms close to those that depository
institutions—banks and thrifts—received through the Fed’s discount window. The
move came “just about  minutes” too late for Bear, Jimmy Cayne, its former CEO,
told the FCIC. 
Unlike the TSLF, which would offer Treasuries for  days, the PDCF offered
overnight cash loans in exchange for collateral. In effect, this program could serve as
an alternative to the overnight tri-party repo lenders, potentially providing hundreds
of billions of dollars of credit. “So the idea of the PDCF then was . . . anything that the
dealer couldn’t finance—the securities that were acceptable under the discount win-
dow—if they couldn’t get financing in the market, they could get financing from the
Federal Reserve,” said Seth Carpenter, deputy associate director in the Division of
Monetary Affairs at the Federal Reserve Board. “And that way, you don’t have to
worry. And by providing that support, other lenders know that they’re going to be
able to get their money back the next day.” 
By charging the Federal Reserve’s discount rate and adding additional fees for reg-
ular use, the Federal Reserve encouraged dealers to use the PDCF only as a last re-
sort. In its first week of operation, this program immediately provided over 
billion in cash to Bear Stearns (as bridge financing until the JP Morgan deal officially
closed), Lehman Brothers, and the securities affiliate of Citigroup, among others.
However, as the immediate post-Bear concerns subsided, use of the facility declined