Federal Reserve May Offer Investment Houses Emergency Loans On A Temporary Basis

Tue, 08 Jul 2008 11:30:02 +0000
Vittorio Hernandez - AHN News Writer

Washington, D.C. (AHN) - Federal Reserve Chairman Ben Bernanke said Tuesday the Fed is studying the grant of emergency loans to investment houses on a temporary basis.

The decision to be an overnight source of cash for Wall Street companies was on account of Bear Stearns teetering bankruptcy which raised fears other investment houses may be in a similar financial strait. It would be the broadest use of the Fed's lending powers in almost 8 decades.

Bernanke, in a prepared talk for a mortgage lending forum in Virginia, said, "We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end should the current unusual and exigent circumstances continue to prevail in dealer funding markets."

JPMorgan Chase and Company later took over Bear Stearns, with the Fed providing $28.82 billion financial backing. Democrats in Congress criticized the plan for Fed to bail out Wall Street because it places billions of taxpayers' money at risk.

In defense of Fed policies, Bernanke said at at mortgage forum, "Allowing Bear Stearns to fail so abruptly at a time when the financial markets were already under considerable stress would likely have had extremely adverse implications for the financial system and for the broader economy."

Bernanke also challenged Congress to provide agencies that regulate investment firms more authority. Large Wall Street investment companies are voluntarily submitting themselves to the oversight of the Securities and Exchange Commission.

Article © AHN - All Rights Reserved