Financial Turmoil: Comparing the Troubled Asset Relief Program to the Federal Reserve's Response

As financial conditions have deteriorated over the past year, the Federal Reserve (FeD) has greatly increased its lending to financial firms. It has also expanded the scope of eligible borrowers to include non-bank financial firms. Some have asked why these loans have not restored financial stability, and if the purchase of up to $700 billion of distressed assets through the recently enacted Troubled Asset Relief Program (TARP) might lead to a different result. Financial assistance to financial firms entails considerable risks to taxpayers. This report analyzes the risks and possible benefits of federally-assisted loans to banks and financial firms, especially in light of the financial crisis that came to a head in September 2008