Fed's emergency finance in 4 decades to an non-FIDC bank

Friday’s action by the Federal Reserve marks the first time since the 1960s that the US central bank has authorised the provision of emergency finance to any financial institution other than a regulated deposit-taking bank. Analysts speculated that the Fed could be forced to provide emergency finance to other investment banks and possibly even some hedge funds in the weeks ahead. In a statement, the Fed said its move was intended to “promote the orderly functioning of the financial system”. the market is too fragile to withstand another systematic risk. A second Fed official said that providing emergency funds to an unregulated financial institution would create serious moral hazard. The Fed said it was acting under section 13.3 of the Federal Reserve Act, which gives it authority to lend to any individual, partnership or corporation “in unusual and exigent circumstances”. As a primary dealer in the bond market, Bear is eligible to take part in the new $200bn securities lending facility that will allow dealers to swap hard-to-finance mortgage securities for Treasuries with the Fed. But the SLF, like the Fed’s new one month term repo operation, operates through twice-monthly auctions. The first auction does not take place until March 27. Bear evidently could not wait.