Congressional Budget Office Issues Report Concerning Financial Impact of FRB Actions Taken During the Financial Crisis

The Congressional Budget Office (the “CBO”) issued a report entitled The Budgeting Impact and Subsidy Costs of the Federal Reserve’s Actions During the Financial Crisis (the “Report”).  The Report describes the various actions taken by the FRB to stabilize the financial markets during the recent financial crisis and analyzes how these FRB actions are likely to affect the federal budget in the future.  The Report also estimates the “risk-adjusted (or fair value) subsidies that the [FRB] provided to financial institutions through [the FRB’s] emergency programs.”  In summarizing the actions taken by the FRB to stabilize the financial markets during the financial crisis, the Report specifically reviews the FRB’s: (1) expanded lending to depository institutions; (2) creation of new lending facilities for nondepository financial institutions; (3) purchases of mortgage-related securities and medium- and long-term length U.S. treasuries in the open market; and (4) support of financial institutions whose potential failure posed a systemic risk.  The CBO concluded in the Report that the approximately $21 billion of subsidies provided by the FRB to support financial institutions during the financial crisis provided benefits to the financial system that exceeded its costs.  Furthermore, had the FRB not taken these actions, the Report states, the financial crisis would have in all likelihood been more protracted and the broader economy would have been more extensively damaged.