Fed Ends Emergency Bank Lending Program

Markets ended the day up on slightly lower than average volume. The Dow was up by 168.43 points and closed out the trading day at 17,888.35. The NASDAQ gained 47.64 points and closed out the day at 5,156.31. The S&P 500 led the day in gains. It closed up 22.22 points and ended the day at 2,102.63.

In international trading, world markets were largely up as well. Markets surged across the board in Asia, with all major indices ending the day in the black. Hong Kong’s Hang Seng jumped by 385 points. The Nikkei in Tokyo ended the day up 268 points. In Australia, the ASX added 94 points.
The picture was slightly more mixed across Europe, with London’s FTSE being the sole major indice to end the day up. The FTSE gained 40 points on the day. In Germany, the DAX fell by 120 points. France’s CAC was also down, losing 43 points.

Fed Ends Emergency Bank Lending Program

A few of the programs put in place during the financial meltdown of 2008 were ended today. Most notably, the Fed called to a close the program responsible for ‘too big to fail’ emergency bank lending. This change puts to an end the days of casual bank borrowing from the Fed, although their prime interest rate continues to be 0%.

The ending of the program came as a provision of the Dodd-Frank bill of 2010. The bill put in place a series of changes to the financial marketplace. Although the bill was controversial at the time, most analysts agree that ending emergency lending to banks is not a bad thing. It has been over 2 years since a new bank has taken advantage of the program.

If this rule was in place during the crisis of 2008, though, it would have prevented the Fed from acting to bail out AIG (AIG) and other massive lending and insurance groups. However, not everyone thinks that ending the emergency lending program goes far enough. Elizabeth Warren, a Democratic Senator, told reporters earlier, “There are still loopholes that the Fed could exploit to provide another back-door bailout to giant financial institutions.”

The new rules in place would, in fact, still allow for continued bailouts if necessary. The Fed is now allowed to judge, by its own criteria, which banks and financial institutions would qualify for emergency loans. The idea is that the Fed can still lend emergency money to banks, although the new rules stipulate that the financial institutions would have to be able to pay the loans back.
Published on Dec 1, 2015
By Aaron Phillips
Aaron Phillips is a financial researcher and journalist based out of Michigan. He regularly writes the IG Daily and IG Weekly columns.

Copyrighted 2016. Content published with author's permission.

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