Fed declines comment on call for auto lending

By Mark Felsenthal

WASHINGTON (Reuters) - U.S. lawmakers kept up pressure on the Federal Reserve on Friday to play a role in providing financial assistance to prevent automakers from collapsing after congressional talks broke down.

Senate Banking Committee Chairman Christopher Dodd said the Fed could find a way to prop up car makers as it did insurer American International Group.

The Bush administration said it might be willing to provide emergency aid to the auto industry on Friday after Senate lawmakers failed to reach a deal.

Dodd questioned why the Fed felt AIG had adequate collateral for an October loan from the Fed, while auto manufacturers do not, citing a letter he received from Fed Chairman Ben Bernanke last week.

"Where was the collateral on the second $40 billion with AIG? ... I don't see great collateral there," Dodd said at a press briefing.

Fed Chairman Ben Bernanke told Dodd in a December 5 letter that the automakers did not appear to satisfy Fed rules that any lending be secured to its satisfaction.

"It is unclear whether the auto manufacturers have unencumbered assets of sufficient amount and quality to meet this requirement," he said.

The Fed's $37.8 billion loan to AIG in October was collateralized with investment-grade, fixed-income securities, which the Fed took in exchange for cash. The government announced the closure of that lending facility on November 10 when the government restructured the AIG bailout package.

A Federal Reserve spokeswoman on Friday declined to comment on a call from House of Representatives Speaker Nancy Pelosi for Fed lending after Congress failed to reach a deal.

Pelosi, a California Democrat, urged that the White House and Treasury Secretary Henry Paulson consider short-term financial assistance for struggling car makers, including use of the $700 billion financial rescue fund or measures open to the Fed.

But Bernanke had told Dodd in his letter that the Fed would be "extremely reluctant" to lend to car makers if Congress, after a period of hearings and debate, couldn't agree to help the industry.

"Our view is that questions of industrial policy are best resolved by Congress because they require balancing political and social priorities about the shape and desirability of involvement by domestic companies in specific industries," Bernanke said.

(Reporting by Mark Felsenthal; editing by Gary Crosse)