WASHINGTON, DC – U.S. Senator Edward J. Markey (D-Mass.) joined Senators Elizabeth Warren (D-Mass.) and David Vitter (R-La.), and Congressmen Scott Garrett (R-N.J.) and Michael Capuano (D-Mass.), and their colleagues in the Senate and House in a letter sent today to Federal Reserve (Fed) Chair Janet Yellen calling for the Fed to strengthen restrictions on its emergency lending authority. The letter was signed by 10 additional members of the Senate and House: Senators Sherrod Brown (D-Ohio), Mark Begich (D-Alaska), Mazie Hirono (D-Hawaii), and Representatives Walter Jones, Jr. (R-Calif.), Stephen Lynch (D-Mass.), Michael McCaul (R-Texas), Gwen Moore (D-Wis.), Keith Ellison (D-Minn.), Leonard Lance (R-N.J.), and Tom Cotton (R-Ark.).
During the financial crisis, the Fed invoked its emergency lending authority to provide over $13 trillion in loans primarily to a select group of large financial institutions. These loans were long-term and offered at below-market rates – a bailout in all but name of institutions regarded as “Too Big to Fail.”
Congress enacted Section 1101 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) to ensure that such bailouts could not happen again. Yet, as the senators and representatives noted in their letter, the Fed’s proposed rule implementing Section 1101 does not place “meaningful restrictions on the agency’s emergency lending powers.”
"If the Board’s emergency lending authority is left unchecked, it can once again be used to provide massive bailouts to large financial institutions without any congressional action,” wrote the senators and representatives. “The Board’s proposed rule fails to strike the appropriate balance between promoting financial stability and mitigating moral hazard among the largest financial institutions.”
The senators and representatives recommended that the Board:
A copy of the letter can be found HERE.