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Federal Reserve to Severely Curtail Its Lending Ability

By:
Chris Gaetano
Published Date:
Nov 30, 2015
AbandonShipIf you're a major financial institution about to collapse, you won't be able to turn to the Federal Reserve for quick cash anymore due to new rules adopted today that prohibit emergency loans to specific entities, according to Reuters. Should there be another financial crisis on the scale of the one that saw billions of dollars spent to bail companies out, then the most the central bank will be able to do directly is make broad-based loans that address larger problems in the financial market. More specifically, according to Reuters, at least five firms would have to be eligible to participate in any emergency lending program established by the Federal Reserve. Further, companies that have failed to pay undisputed debts within the previous 90 days will not be allowed to take part in these programs. 

During the height of the most recent financial crisis, the Federal Reserve provided $710 billion in loans and guarantees, and while those loans have since been paid back (netting the central bank a tidy $30 billion profit), critics have said those loans represented an overreach of the Federal Reserve's authority. The new regulations were crafted as part of the Dodd-Frank Act in response to these criticisms, intended to be a way to head off future "too big to fail" moments.