Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Retirement Income Conference
    • 2022 Managing Pension Risk & Liabilities
    • 2022 WorldPensionSummit
Breadcrumb
  1. Home
  2. Online
September 15, 2008 01:00 AM

Fed enters new era by accepting investment bank stock as collateral

Neil Roland
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    Federal Reserve Chairman Ben Bernanke drew high marks from economists for stepping in on Sunday to ease collateral requirements for the emergency loans the Fed extends directly to investment banks — including an unprecedented agreement to accept as collateral the banks’ own shares.

    The action, taken as banks were scrambling to protect themselves and the global financial system against the collapse of Lehman Brothers Holdings Inc., New York, gives the firms easier access to cash at a time when they have few credit alternatives.

    It also extends the Fed’s role in regulating Wall Street — an oversight expansion that got a boost when it engineered New York-based J.P. Morgan Chase & Co.’s purchase of Bear Stearns Cos. Inc.last March.

    “Just as there are no atheists in foxholes, there are no libertarians in a true financial crisis,” said Jay Bryson, global economist with Wachovia Corp., Charlotte, N.C. “If the Fed had sat back, the stock market’s reaction today would have been a lot more extreme.”

    Even so, U.S. stocks suffered their sharpest one-day decline in seven years, with the Dow Jones industrial average slumping 504.48 points, or 4.42%, to 10,917.51; the S&P 500 dropped 59 points, or 4.71%, to 1,192.70; and the Nasdaq composite fell 81.36, or 3.6%, to 2,179.91. The decline marked single one-day point drop since a fall of 684.81 points on Sept. 17, 2001, the first day of trading after the Sept. 11 terrorist attacks.

    The Fed said it would accept equities as collateral for the first time in the Primary Dealer Credit Facility, its 6-month-old program for lending cash directly to securities firms. Until now, it had accepted only investment-grade debt.

    In addition, the Fed will accept investment-grade debt securities as collateral for the Term Securities Lending Facility, which auctions loans of Treasuries. These auctions will now take place every week instead of at two-week intervals.

    Among the 15 or so firms eligible for these loans are Deutsche Bank Securities Inc., Goldman Sachs Group Inc., Morgan Stanley and UBS Securities.

    How significant an impact the Fed’s move will have depends on how many firms actually borrow money.

    “We’re in the middle of a hurricane right now and anything can happen,” said Richard Yamarone, chief economist at Argus Research in New York, adding that the Fed’s action could “go a considerable way in easing pressures that may be mounting at banks.”

    One of the bigger incentives for firms to borrow: The Fed’s action will let them keep coveted Treasury bonds rather than having to use them as collateral, said Mr. Bryson, who was an economist at the Fed in the 1990s.

    The risks to the Fed are modest, economists said. If firms take out loans and then collapse, the Fed may be left holding equities and debt securities that it would then have to sell.

    But the Fed would have the discretion to hold the securities and sell them at a favorable time, said Cary Leahey, an economist at Decision Economics Inc., a consulting firm in New York. “The Fed’s running the largest hedge fund in the world.”

    Looking to the long run, the Fed’s action seems like another step in its inevitable move to tighten regulation of Wall Street. “There will be more regulatory oversight of investment banks — at least those that are left,” Mr. Bryson said.

    Neil Roland is a reporter for Financial Week, a sister publication of Pensions & Investments

    Recommended for You
    Happy Fourth of July greeting
    No P&I Daily for Independence Day holiday
    Juneteenth_1550_i.jpg
    No P&I Daily on Juneteenth
    No P&I Daily on Memorial Day
    No P&I Daily on Memorial Day
    Private Markets
    Sponsored Content: Private Markets

    Reader Poll

    August 10, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Gaining Momentum: Where Next for Trend-Following?
    How Has 2022's Carnage Reshaped Global Stock and Bond Markets?
    Can Sustainable Labeling of Financial Products Prevent Greenwashing?
    Hedge Funds 2.0: Back to the future
    Is there a mid-cap gap in your DC plan?
    Why pursue direct lending in the core middle market?
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    August 1, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright Ā© 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Retirement Income Conference
      • 2022 Managing Pension Risk & Liabilities
      • 2022 WorldPensionSummit