Existing Laws Give Fed and Treasury Some Options
With Congress’ refusal yesterday to approve a $700 billion Wall Street bailout, the Federal Reserve and the Treasury Department are using existing options to shore up confidence in the financial markets.
Yesterday the Fed announced it would add an extra $150 billion to an emergency lending program for banks, and an additional $330 billion through so-called swap lines with foreign central banks, the New York Times reports. The Fed’s activities are financed with supplemental securities created by the Treasury Department.
A Depression-era law gives the Fed power to lend money to companies it deems too dangerous to fail, the story says. And the Treasury Department has authority under a housing bill passed this summer to buy up mortgage-backed securities.
The Wall Street Journal Real Time Economics Blog identified the Depression-era law as Section 13-3 of the Federal Reserve Act, in a story published earlier this year.
Despite these powers, Treasury Secretary Henry Paulson maintains “our toolkit is substantial but insufficient.”
