The Federal Reserve must clarify its emergency lending authority rules to foreclose the possibility of “backdoor bailouts” in a future financial crisis, a bipartisan group of lawmakers said in a letter yesterday, Bloomberg News reported. The central bank’s proposed rules for emergency lending place “no meaningful restrictions” on its lending powers in a time of crisis, inviting the prospect of assistance similar to that provided five years ago, 15 Senate and House members wrote in the letter to Federal Reserve Chair Janet Yellen. “If the board’s emergency lending authority is left unchecked, it can once again be used to provide massive bailouts to large financial institutions without any congressional action,” the group wrote. “The board’s proposed rule fails to strike the appropriate balance between promoting financial stability and mitigating moral hazard.” The letter was signed by 15 members of Congress led by Sens. Elizabeth Warren (D-Mass.) and David Vitter (R-La.), and Reps. Scott Garrett (R-N.J.) and Michael Capuano (D-Mass.). In their letter yesterday, the lawmakers urged the Fed to establish a time limit for financial institutions’ use of the emergency lending and duration of each lending facility as well as creation of procedures for orderly unwinding of any emergency program. They also recommended that the central bank create a penalty rate for any assistance.
http://www.bloomberg.com/news/print/2014-08-18/fed-urged-to-ensure-emer…
Click here to read the full text of the letter.
http://www.warren.senate.gov/files/documents/2014-8-18%20Ltr%20to%20Fed…