A red alert sounded at the Federal Reserve in mid-March when Americans began pulling out of prime money-market funds, one of the safest places to park cash. As policymakers cut interest rates to near-zero, it quickly became clear that they’d need to get creative, and fast, to prevent a shutdown in the flow of credit.
Fed Chair Jerome Powell and his board called on Andreas Lehnert and his 50-person team at the Division of Financial Stability. Known as FS inside the Fed system, this crew started in 2010 with a staff of just four, set up in the aftermath of the financial crisis. The division spent much of the ensuing decade looking at fragilities in the financial system that could lead to a full-scale breakdown in moments of stress. So when Covid-19 hit and widespread lockdowns of every type of business threatened a sudden halt in the flow of money, Lehnert and his colleagues were prepared.