INSTANT VIEW: Fed takes action to help ailing banks

NEW YORK (Reuters) - The U.S. Federal Reserve on Sunday said it would begin accepting equities as collateral for emergency loans for the first time ever, as it laid out a series of steps to calm financial markets and brace for the expected collapse of investment bank Lehman Brothers.

KEY POINTS: * Fed says eligible collateral at PDCF broadened to closely match tri-party repo collateral * Fed says TSLF collateral also expanded and that Schedule 2 auctions will now include all investment grade debt securities * Fed says to hold scheduled TSLF auctions every week instead of at two-week intervals * Fed says schedule 2 TSLF auction amounts to total $150 billion, up from $125 billion * Fed to allow insured depositories to offer affiliates liquidity on assets typically funded in tri-party repos * Bernanke says Fed steps, significant private sector commitments intended to mitigate market disruptions

COMMENTS:

TOM SOWANICK, CHIEF INVESTMENT OFFICER, CLEARBROOK FINANCIAL

LLC, PRINCETON, NEW JERSEY:

"It seems as though the Federal Reserve is willing to be the lender of last resort. There is little doubt that the Fed believes systemic risk is becoming closer to really landing on shore. Hence the consortium to work through Lehman's derivative positions. Third party risk is a huge unknown and very risky for all markets."

DARIUSZ KOWALCZYK, CHIEF INVESTMENT STRATEGIST, CFC SEYMOUR,

HONG KONG:

"This should make it much easier for anybody, like Lehman, to get cash in exchange for collateral. It will not save Lehman though because Lehman is falling because of lack of confidence about its longer-term prospects. It's not falling for the same reasons that Bear Stearns fell when they suddenly ran out of cash.

"It will make the process of winding down Lehman easier."

V. ANANTHA NAGESWARAN, HEAD OF INVESTMENT RESEARCH,

ASIA-PACIFIC, BANK JULIUS BAER, SINGAPORE:

"They are just accepting a broader range of collateral. To me, it's no big deal. If anything, they are going to turn back and place the Treasuries with the Fed and borrow more.

"This is actually impairing the Fed's balance-sheet.

"The Fed's ability to keep on doing this will at some point end. In a way, these things have brought the Fed closer to that point and this is negative for the U.S. dollar.

"This is just a continuation of what the Fed has been doing throughout the year. The mere fact that they are forced to do this and they may still yet do some more indicates the breadth and depth of the trouble that the system is in."

TONY CRESCENZI, CHIEF BOND MARKET STRATEGIST, MILLER, TABAK &

CO., NEW YORK:

"Dealers hold substantial aggregate positions in corporate bonds, New York Fed data show. Dealers had until the last two reporting weeks held more corporate bonds than agency securities. Dealers held $158.95 billion of corporate bonds compared to $164.30 billion of agencies, $61.87 billion of mortgage-backed securities, and a short position of $74 billion in Treasuries. Hence, the Fed's action allows dealers to pledge an asset class that is a significant part of the Street's securities positions."

"At present there is arguably more identifiable value in corporate equities and bonds in terms of future cash flows than there is for many of the mortgage-related assets that were created during the credit bubble. It is currently much easier to predict, for example, the cash flows to a company from sales of food, energy, clothing, personal-care products, and medical products, and so on than it is to predict the cash flows on exotic mortgages and even more conventional types, for that matter."