Introduction

Since summer 2007, the United States of America has been immersed into one of the worst financial crisis of all time. All sectors of the economy have successively been affected. This has caused job losses for millions, numerous home foreclosures, collapse in stock markets, and either the failure or government rescue of several financial institutions. These factors have resulted in severe economic recession in the United States. In this context, policymakers have taken the bull by its horn and responded vigorously and aggressively to the financial turmoil. The U.S. government launched the $700 billion Troubled Asset Relief Program in October 2008 to purchase assets and equity from financials firms in order to restore confidence in the markets and to reinforce the American financial sector.1 In the following February, the Obama administration enacted the $787 billion American Recovery and Reinvestment Act of 2009, an economic stimulus intended to create jobs and boost investment and consumer spending in the U.S.2 In addition, Washington rushed to help a number of banks and insurance companies, and nationalized some, including Freddie Mac and Fannie Mae. The United States central bank, the Federal Reserve, has also played an prominent role in managing the crisis, often hand in hand with the government. As the nationʼs monetary policy regulator, the Federal Reserve determines the money supply and the interest rate at which banks lend funds to each others. It has injected massive amount of currency into the banking system and has dramatically reduced the interest rate. This has provided liquidity to the sector and has encouraged banks to lend money to other banks, as well as to companies and households. Because of the unparalleled gravity of the crisis, the Federal Reserveʼs traditional means to deal with financial instability have not been sufficient and the central banker has had to develop new instruments and new ways of supporting market participants.
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