Fed moves to deal with financial crisis
WASHINGTON -- The Federal Reserve announced late Sunday several steps to cope with the worst credit crisis in decades, including broadening the types of assets that investment banks can put up to get emergency loans from the Fed.
The action came as U.S. and foreign commercial banks were hashing out a plan to inoculate the global financial system against the possible failure of Lehman Brothers.
Federal Reserve Chairman Ben Bernanke announced the actions in a statement, saying they were being taken after a weekend of discussions with officials from the Treasury Department and the Securities and Exchange Commission and top executives of financial firms.
Those talks were aimed at seeing whether another financial institution would be willing to take over venerable investment bank Lehman Brothers and failing that, how other institutions could pool resources to protect the global financial system.
Bernanke said the discussions had been aimed at identifying "potential market vulnerabilities in the wake of an unwinding of a major financial institution and to consider appropriate official sector and private sector responses."
"The steps we are announcing today, along with significant commitments from the private sector, are intended to mitigate the potential risks and disruptions to markets," Bernanke said.
Besides expanding the types of collateral that can be used, Bernanke said the Fed would also increase the frequency of some of the auctions being used to get loans to banks from every other week to a weekly basis.
In a separate statement Treasury Secretary Henry Paulson said he supported the Fed's moves and said the actions taken should "strengthen and enhance our financial markets. These initiatives will be critical to facilitating liquid, smooth functioning markets and addressing potential concerns in the credit markets."
Paulson, who was involved in three days of talks at the New York Federal Reserve Bank, said he appreciated the efforts by other financial firms involved in the discussions to promote "orderliness and stability in our financial markets as we work through this extraordinary environment."
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