INSTANT VIEW: Fed may extend emergency lending for dealers

NEW YORK (Reuters) - Federal Reserve Chairman Ben Bernanke said on Tuesday the U.S. central bank may keep an emergency lending facility for big Wall Street firms open past year-end while it seeks to restore financial market stability.

KEY POINTS: * In prepared remarks for delivery to a mortgage lending forum sponsored by the Federal Deposit Insurance Corp., Bernanke said credit costs have been driven higher and the pace of U.S. economic growth also has been hurt by market turmoil. * "We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end, should the current unusual and exigent circumstances continue to prevail in dealer funding markets," Bernanke said in prepared remarks.

COMMENTS:

JOSEPH BATTIPAGLIA, MARKET STRATEGIST, STIFEL NICOLAUS, YARDLEY, PENNSYLVANIA:

"They had a time clock ticking, and the firms would not be in any better position to take these bad loans back on their own books, so they would have to extend this further. So him signaling that willingness is a positive.

"But it's also a recognition that these troubled portfolios don't lend themselves to a quick resolutions, and therefore, with each passing quarter you're going to have more write-offs than you otherwise would have thought carrying into 2009.

"We have yet to see a kitchen sink event because it is impossible to take a kitchen sink event, which is unlike any previous financial calamity we have gone through in recent history. Because the size of the losses are so big, you would wipe out not only the regulatory capital, but the capital itself for most of these enterprises (banks)."

MATTHEW MOORE, ECONOMIC STRATEGIST, BANC OF AMERICA SECURITIES, NEW YORK:

"Bernanke said that the Fed is considering extending the PDCF but right now there are no loans outstanding, or at least as of last Wednesday, so it is not really significant for the bond market."

WILLIAM O'DONNELL, DIRECTOR OF INTEREST RATE STRATEGY, UBS SECURITIES LLC, STAMFORD, CONNECTICUT:

"They are preparing for tougher times ahead for the financial system. The presumption was that they were going to wind down the lending programs if and only if credit conditions improve. Obviously that has not been the case."

"Money has become dear despite their efforts. The problems seem to be elevated and are actually creeping higher. They may have to do more."

DAVID RESLER, CHIEF ECONOMIST, NOMURA SECURITIES, NEW YORK:

"People who follow these issues can hardly be surprised by much in here. I haven't found anything that's surprising. If you adhere to the premise that markets move on surprises, this isn't a market moving document. There's no new ground being broken in this."

ANTON SCHUTZ, PORTFOLIO MANAGER, MENDON CAPITAL ADVISORS, ROCHESTER NEW YORK:

"Bernanke obviously will continue to do the lending facility, as long as he sees potential strains in the system. The last thing he wants to do is walk away and see a dealer collapse. If anything is clear from what happened with Fannie and Freddie, it's that panic in the market is not over. It's all about safety and soundness. When the market is selling down paper with the implicit guarantee of the government, there's a problem with liquidity in the system."