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Fed's Bernanke tells GSEs discount window open-source

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke told Freddie Mac chief Richard Syron that his company and Fannie Mae could take advantage of the emergency discount window, according to a source familiar with the conversation.

The source said that Bernanke and Syron spoke by phone Thursday afternoon and the central bank chief said in that call he intended the discount window to be opened if necessary to the two largest U.S. mortgage finance companies.

The Fed declined to comment on whether it was considering opening its discount window to the government-sponsored enterprises (GSEs). A senior senator said at a press conference on Thursday afternoon that such action was among a range of possibilities under discussion to help the struggling mortgage lenders weather a crisis of confidence.

“I know that both the Fed and the Treasury are looking at various options ... including things like the discount window,” Senate Banking Committee Chairman Chris Dodd told a news conference on Capitol Hill on Friday.

“I don’t want to draw any conclusions about it yet, but they are certainly examining what other means might be necessary in order to shore up the situation,” the Connecticut Democrat said.

Freddie Mac spokesman Douglas Duvall declined comment when asked about a phone call between Bernanke and Syron. A Fannie Mae spokesman was not immediately available for comment.

Fannie and Freddie shares have been pummeled in recent days amid reports that the Bush administration was considering contingency plans for taking over one or both of the companies and place them in a conservatorship if their problems deepened.

Fannie Mae shares slid 22.4 percent to end at $10.25, off a session low at $6.87, while Freddie Mac ended down 3.1 percent at $7.75, off a session low at $3.89. The listings topped the list of the New York Stock Exchange’s biggest percentage losers.

But Treasury Secretary Henry Paulson effectively rejected any plan to nationalize the companies, saying the administration’s focus was on supporting the GSEs “in their current form.”

William Poole, the former president of the St. Louis Federal Reserve Bank, said the Fed likely could open its emergency lending facility to the mortgage lenders under the same circumstances that were in play when it gave investment banks access in March.

Poole, a 10-year veteran at the Fed, said the U.S. central bank would probably have the authority to open the discount window to Fannie and Freddie under the “unusual and exigent” circumstances it cited in March.

But also said he did not think such a drastic step would be necessary, noting that the Fed could simply purchase the GSEs’ debt directly and hold it on the Federal Reserve system’s open market portfolio.

Reporting by Patrick Rucker; Writing by Glenn Somerville; editing by Gary Crosse

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