The U.S. Federal Reserve worried
about exposing its balance sheet to credit risks when it
launched a lending facility for top bond dealers in an
emergency move in mid-March, minutes of two Fed meetings
released on Friday showed.
The U.S. central bank, which at the same time approved
emergency financing to prevent problems at investment bank Bear
Stearns from infecting the entire financial system, saw
evidence other investment banks may have been in trouble too,
minutes of a March 16 meeting said.
The Fed's orchestration of the rescue of Bear Stearns and
extension of credit to nonbank firms for the first time since
the Great Depression came at the height of the credit crisis
triggered by a wave of failed mortgages. The Fed has come under
fire for intervening in markets and putting taxpayer funds at
risk, but the move is also viewed by some as a bold stroke that
spared the national economy from financial meltdown.
Fed officials saw conditions as dire enough to justify
extraordinary measures but were concerned about losses and
wondered how long they would need to keep the unusual safety
net in place, according to minutes of the two emergency
"Board members considered whether six months was an
appropriate duration for the facility, and they asked about
provisions in the new facility for protecting the Federal
Reserve against credit risk," the minutes said.
The New York Fed on Thursday valued its loan to JPMorgan to
buy Bear Stearns at $28.8 billion. The line of credit is backed
by a portfolio of bonds and other fixed-income products held by
Bear Stearns before it collapsed.
The Fed has said the portfolio contains collateralized
mortgage obligations, most of which are backed by
government-sponsored mortgage finance agencies. It also
contains asset-backed securities, adjustable rate mortgages,
commercial mortgage-backed securities, and collateralized bond
Many potential investors had been invited to invest in Bear
Stearns, but Bear Stearns determined that JPMorgan was the most
suitable bidder, the minutes from the Fed's March 14 meeting
The Fed normally restricted emergency funding for
deposit-taking banks and cited financial market turmoil as
justification for making the exception.
Central bank officials are deliberating whether to extend
the life of the primary dealer credit facility beyond six
months. Policy-makers have said that the Fed should be given
greater authority to supervise securities firms if it is to
keep the discount window open to them.
(Reporting by Mark Felsenthal; Editing by Jonathan Oatis)
The Senate confirmed banker
Elizabeth Duke for a seat on the Federal Reserve on Friday, but
declined to act on two other long-stalled nominees to the
Without dissent, the Democratic-led Senate approved Duke as
part of a deal reached with the White House on dozens of
President George W. Bush's nominees to a variety of federal
However, the Senate did not act on two other Fed nominees:
Larry Klane, a former executive at Capital One Financial Corp,
and current Fed Governor Randall Kroszner, who continues to
serve even though his term has expired.
Democrats have refused to confirm Klane and Kroszner,
apparently wanting the new president elected in November to
select a nominee of his own.
When Duke takes her post, there will be one vacancy on the
normally seven-member Fed board of governors, which oversees
U.S. banks and helps set monetary policy. A second seat will
open up at the end of August when Fed Governor Frederic Mishkin
Some economists have warned against leaving the central
bank short staffed at a time it is dealing with an unusually
complicated mix of economic and regulatory challenges.
"In confirming Elizabeth A. Duke for a term through 2012,
we are ensuring the Fed can function during these difficult
economic times," said Senate Majority Leader Harry Reid, a
Talks between Senate Democratic and Republican leaders and
the White House on a possible package of nominees broke down
Thursday, but negotiations were resumed and an agreement was
reached around midday on Friday.
"I am pleased that we were able to reach an agreement with
the president and Senate Republicans," Reid said.
(Additional reporting by Richard Cowan; Editing by Neil
The U.S. Senate on Friday confirmed
one Republican and two Democratic nominees to fill open
commissioner seats at the Securities and Exchange Commission,
returning the agency to full strength as it tackles oversight
of big U.S. investment banks and other issues.
Luis Aguilar, a law partner at McKenna Long & Aldridge, and
Elisse Walter, a senior executive with the Financial Industry
Regulatory Authority, were approved for the vacant Democratic
seats on the commission.
Troy Paredes, a professor at Washington University School
of Law, was approved for the open Republican spot.
The three commissioners join the SEC amid an intensifying
debate on how to oversee U.S. investment banks. The agency has
been working with the Federal Reserve on an agreement to share
information about the banks.
The SEC is also crafting credit rating agency reforms in
wake of the subprime mortgage crisis and working on plans for
the general acceptance of international accounting standards in
the United States.
Calls to the SEC were not immediately returned and it was
unclear how soon Aguilar, Walter and Paredes will start their
The five-member SEC has been operating without Democratic
commissioners since February.
(Additional reporting by Richard Cowan; Editing by Brian
Moss and Mark Porter)