compares the Federal Reserve's actions with the literature on optimal policy in a liquidity trap. The theory suggests that, to … securities markets can restore liquidity with fewer government funds than extending credit to the originators of loans …

in 2017, there was no commensurate shrinkage of these claims on liquidity. Consequently, the financial sector was left … more sensitive to potential liquidity shocks, with weaker-capitalized banks most exposed. This necessitated Fed liquidity … provision in September 2019 and again in March 2020. Liquidity-risk-exposed banks suffered the most drawdowns and the largest …