Category Archives: Federal Reserve

A Former Regulator on the Fed Allowing Deposits to Fund Investment Banking Operations

Due to the lateness of the hour, I will be a bit more terse than I perhaps should be. We discussed yesterday that one of the emergency measures implemented by the Fed was the suspension of the rules prohibiting banks from using deposits to fund their investment banking subsidiaries. Reader dh helpfully pointed to background […]

WSJ: Fed Asks Goldman, JP Morgan to Lend $75 Billion to AIG (But FInancial Times Disagrees)

The numbers and the measures become more and more extreme. For AIG to get permission from regulators to move $20 billion in capital from its subs to the holding company and have significant asset disposals teed up wasn’t sufficient to shore up the embattled insurer., The Fed has reportedly convened yet another emergency session to […]

Fed Makes Biggest Reserve Addition Since 9/11

The Fed made a $70 billion reserve injection today in two operations in response to a sharp increase in the Fed funds rate, indicating bank reluctance to lend to each other. One reader informed us the rate was 3.75% mid-morning after the first, $20 billion addition (versus the 2% target level) and according to Bloomberg […]

Banks Can Now Use Deposits to Fund Investment Banking Operations?

Reader Michael M called our attention to this statement in a Financial Times article: The Fed also suspended rules that prohibit banks from using deposits to fund their investment banking subsidiaries. Was this the quid pro quo for Band of America buying Merrill? If so, the repercussions extend beyond BofA. This is a time when […]

WSJ: Fed Expands Liquidity Facilities to Include Equities

I guess it is now official. We no longer have functioning trading markets, at least in terms of serving their alleged purpose of giving companies access to capital. The Fed is no longer the lender of the last resort. It is increasingly becoming not merely a lender, but by adding equities to its list of […]

AIG Asks the Fed for Help

This is truly unbelievable. Even as little as a week ago, the idea that AIG, the world’s biggest insurer, would go begging the Fed for help would have seemed daft. But that’s now an element of the meltdown in progress. And AIG is a major credit default swaps writer, bigger than Bear. If Bear could […]

NY Times: Lehman Filing For Bankruptcy (Update: Gross Sees "Tsunami")

Hat tip readers dd and viv on this update from the New York Times’ Dealbook: Lehman will seek to place its parent company, Lehman Brothers Holdings, into bankruptcy protection, while its subsidiaries will remain solvent while the firm liquidates its holdings, these people said. A consortium of banks will provide a financial backstop to help […]

NY Times: Barclays, Most Likely Lehman Suitor, Walks from Deal

The noose is tightening, with the powers that be facing the unattractive choices of a politically unpopular bailout (and egg on their face) versus an unwind of Lehman with potentially disastrous consequences. Will Paulson blink? So far, the word is no. From the New York Times (Hat tip reader DaddyMac): Unable to find a savior, […]

WSJ: Private Sector Resolution Looking Less Likely; Pressure Continues for Bailout (Updated)

The Wall Street provided an update on the Lehman rescue efforts which were consistent with its earlier coverage, which discussed considerable impediments to a “good bank/bad bank” solution with Wall Street firms providing the capital to support the bad bank. Note this contradicts the more optimistic report from CNBC on this approach (which we viewed […]

CNBC: Lehman Bad Bank Deal Drafted; Firms Expected to Kick in $3 Billion Each

A few hours ago, we went over the most recent report on the Lehman talks sponsored by the Fed (the Wall Street Journal had a remarkably detailed account), and it seemed as if the obstacles to getting a deal done were considerable. Although there was discussion of forming a “good bank/bad ban” structure, it sounded […]

Lehman Options Limited; Firm Hires Bankruptcy Attorneys

The New York Times and the Wall Street Journal provided Saturday afternoon updates on Lehman. The discussions increasingly acknowledge that a deal may not be in place by Sunday as initially hoped (understandable, given the authorities’ unwillingness to provide support and the near-impossibility of doing adequate due diligence in a few days) and have moved […]

Emergency Fed Meeting: Paulson and Fed Attempt to Jawbone Wall Street to Rescue Lehman

Not surprisingly, it appears increasingly unlikely that private parties are wiling to take on a company that is pretty certain to have negative net worth, particularly when the point of a deal is to have someone, anyone take on the liabilities. But the Fed and Treasury are equally unwilling (at least as of now) to […]

Lehman: Deal Sought Before Monday; BofA Most Likely Suitor (Updated Again)

News reports appear to be converging on the hoped-for end game for Lehman. Whether that will come to pass is another thing entirely. First, the Washington Post, New York Times, and Wall Street Journal all report that the Fed and Treasury are brokering a deal, but are trying to avoid the use of public funds. […]

Central Banks Anticipate "Mother of Year-Ends" ‘Liquidity Crunch

We noted a few weeks ago that between large amounts of short term financial firm debt maturing in the third and fourth quarters, banks still leery of lending to each other, and liquidity always lower at year end (banks pull back from the market to square off their books), this November-Decemeber looks to be even […]

Sign That Fed is Pushing on a String?

This tidbit from the Wall Street Examiner came via reader Scott: Once upon a time, when faced with a market meltdown the Fed would have pumped a wad of cash nto the market and it would have been good for a rally of a couple or three hundred points. Today the Fed added a whopping […]