The Term Auction Facility (TAF) was designed by the Federal Reserve during the financial crisis to inject emergency short-term funds into banks, as a supplement to the lender of last resort discount window offerings. We describe how the Federal Reserve altered the design of the Term Auction Facility (TAF) over the course of the financial crisis and examine the utilization of this stand-alone facility. Most specifically we detail the impact of the greatly increased offering amounts in all auctions after October 2008, which resulted in the facility no longer auctioning scarcely available funds. We also document significantly different usage of the facility by FDIC-insured community and non-community banks, consistent with the notion of a two-tiered banking system in the U.S. Community banks were far less likely to use the facility than larger, non-community banks.

We examine the effects of bank’s political connection on bank performance and risk in China. We use hand-collected information on CEOs’ professional background to identify their political affiliations, and find that banks whose CEOs have former government experiences have higher return on assets, lower default risk, and lower credit risk. Additionally, politically connected banks have disproportionally higher performance when the CEOs previous worked in the same city where the current bank’s headquarter locates, had past banking experiences, spend more on entertainment and travel costs, and have higher previous administrative rankings (e.g., at the provincial or state level). These results suggest that politically connected banks have better access to lending to politically connected firms, which are high yield assets and more likely to be bailed out when in distress. Our results offer a mechanism of political rent seeking, consistent with the institutional environment of China’s banking and political system.