(Adds Fed comment)
WASHINGTON Aug 18 A bipartisan group of U.S.
lawmakers on Monday urged the Federal Reserve to restrict its
crisis lending programs for big banks, which were criticized as
bailouts during the 2007-2009 meltdown.
During the crisis, the Fed invoked its emergency lending
powers to pump cash into Citigroup, Morgan Stanley
and other banks to prevent the global panic from worsening.
The 2010 Dodd-Frank law, enacted by Congress to crack down
on Wall Street excesses, curtailed those powers. It instructed
the Fed to provide emergency loans as a broad program, not to
individual banks, and blocked it from lending to insolvent
Fifteen lawmakers from both political parties and both
houses of Congress said on Monday that the Fed has not done
enough on its own to adequately limit its crisis lending powers.
"If the board's emergency lending authority is left
unchecked, it can once again be used to provide massive bailouts
to large financial institutions without any congressional
action," they said in a letter to Fed Chair Janet Yellen.
In a sign of the breadth of the backlash against bailouts,
the group included lawmakers who are rarely found on the same
side of financial regulatory issues, including both supporters
and fierce critics of the Dodd-Frank law.
Senators Elizabeth Warren, a Massachusetts Democrat, and
David Vitter, a Republican from Louisiana, and representatives
Scott Garrett, a New Jersey Republican, and Michael Capuano, a
Massachusetts Democrat, were the main authors.
Congress approved billions of dollars in 2008 to stabilize
banks. In addition, the Fed launched its own programs, such as
an overnight loan facility for primary dealers.
In all, the Fed provided more than $13 trillion to banks
that relied on emergency lending programs for an average of 22
months, the letter said. "These loans were another bailout in
all but name," the lawmakers said.
Specifically, the group criticized rules the Fed proposed in
December 2013 to implement the Dodd-Frank requirement that
emergency programs provide liquidity to the entire financial
system, not failing banks.
The lawmakers said the Fed failed to set a time limit for
banks to receive crisis cash. They also said the Fed limited its
definition of "insolvent" firms that cannot receive Fed funds to
those already in bankruptcy. The Fed could still lend to a bank
teetering on the edge of bankruptcy, they said.
"The purpose of ... Dodd-Frank was to ensure that banks that
would be insolvent absent emergency lending assistance from the
board would be put into bankruptcy," they said.
The lawmakers also directed the Fed to set out a process for
ending emergency programs and to set penalty rates so that banks
cannot borrow from the Fed at cheaper rates than they could get
in the financial markets.
The Fed is still finalizing its rules for crisis lending. A
Fed spokesperson said the agency would consider all of the
comments on its initial proposal before writing final rules.
The group also included senators Sherrod Brown, Mark Begich,
Mazie Hirono and Edward Markey and representatives Stephen
Lynch, Gwen Moore, Keith Ellison, Walter Jones, Michael McCaul,
Leonard Lance and Tom Cotton.
(Reporting by Emily Stephenson; Editing by Karey Van Hall and