Asani Sarkar, Federal Reserve Bank of New York

We examine the financial conditions of dealers that participated in two of the Federal Reserve’s lender-of-last-resort facilities – the Term Securities Lending Facility (TSLF) and the Primary Dealer Credit Facility (PDCF) – that provided liquidity against a range of assets during 2008-09. We find that dealers with greater leverage and lower equity returns prior to borrowing from the facilities were more likely to participate in the programs, borrow more and at higher bidding rates. These effects were stronger for facilities that allowed tendering of more illiquid collateral. We also find that dealers who borrowed heavily in one facility tended to do the same in the other. Moreover, dealers seem to have borrowed from the PDCF mainly because they needed funds in addition to what they could obtain from the TSLF and not because they valued the flexibility of shorter-term borrowing