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Why Does the Fed Really Use SPVs?

The Federal Reserve “borrowed a tool from financial engineers whose handiwork had led to the Great Panic. It created a ‘special purpose vehicle’ . . ." – David Wessel, In FED We Trust (2009)

It was March 2008, and the Fed was helping rescue Bear Stearns by facilitating its sale to JPMorgan (JPM). To get it done, JPM hived off $30 billion of Bear Stearns’s assets in a bankruptcy-remote special purpose vehicle (SPV)—$29 billion of which would be financed by the Fed, the remainder by junior funding from JPM. This would become known as Maiden Lane (named for the street next to New York Fed). It would be the first of three Maiden Lanes (with the second and third established as part of the AIG rescue); it was the first of five SPVs set up by the Fed during the Global Financial Crisis (GFC)—of the 7 SPV programs and 11 actual SPVs authorized. Since the start of the GFC through today, the Fed has provided emergency liquidity from 10 different SPVs.