{ "id": "R44185", "type": "CRS Report", "typeId": "REPORTS", "number": "R44185", "active": true, "source": "EveryCRSReport.com, University of North Texas Libraries Government Documents Department", "versions": [ { "source": "EveryCRSReport.com", "id": 621106, "date": "2020-03-27", "retrieved": "2020-03-28T22:01:30.025183", "title": "Federal Reserve: Emergency Lending", "summary": "The 2007-2009 financial crisis led the Federal Reserve (Fed) to revive an obscure provision found in Section 13(3) of the Federal Reserve Act (12 U.S.C. 344) to extend credit to nonbank financial firms for the first time since the 1930s. Section 13(3) provides the Fed with greater flexibility than its normal lending authority. Using this authority, the Fed created six broadly based facilities (of which only five were used) to provide liquidity to \u201cprimary dealers\u201d (certain large investment firms) and to revive demand for commercial paper and asset-backed securities. More controversially, the Fed provided special, tailored assistance exclusively to four firms that the Fed considered \u201ctoo big to fail\u201d\u2014AIG, Bear Stearns, Citigroup, and Bank of America. \nIn response to the financial turmoil caused by the coronavirus disease 2019 (COVID-19), the Fed reopened four of these broadly-based programs and created two new ones in 2020. Treasury pledged $50 billion of assets from the Exchange Stabilization Fund (ESF) to protect the Fed against losses in most of these programs. H.R. 748, referred to by some as the \u201cthird coronavirus stimulus\u201d bill, was passed by the Senate on March 25, 2020. The bill would provide between $454 billion and $500 billion to support Fed liquidity facilities. The bill states that applicable requirements of Section 13(3) shall apply to these facilities. \nCredit outstanding (extended in the form of cash or securities) authorized by Section 13(3) peaked at $710 billion in November 2008. All credit extended under Section 13(3) during the financial crisis was repaid with interest. Contrary to popular belief, the Fed earned profits of more than $30 billion and did not suffer any losses on transactions authorized by Section 13(3). These transactions exposed the taxpayer to greater risks than traditional discount window lending to banks, however, because in some cases the terms of the programs had fewer safeguards.\nThe Fed\u2019s use of Section 13(3) in the 2007-2009 crisis raised fundamental policy issues: Should the Fed be lender of last resort to banks only, or to all parts of the financial system? Should the Fed lend to firms that it does not supervise? How much discretion does the Fed need to be able respond to unpredictable financial crises? How can Congress ensure that taxpayers are not exposed to losses? Do the benefits of emergency lending outweigh the costs, including moral hazard? How can Congress ensure that Section 13(3) is not used to \u201cbail out\u201d failing firms? Should the Fed tell Congress and the public to whom it has lent?\nThe restrictions in Section 13(3) placed few limits on the Fed\u2019s actions in 2008. However, in 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203) added more restrictions to Section 13(3), attempting to ban future assistance to failing firms while maintaining the Fed\u2019s ability to create broadly based facilities. The Dodd-Frank Act also required records for actions taken under Section 13(3) to be publicly released with a lag and required the Government Accountability Office (GAO) to audit those programs. Although Section 13(3) must be used \u201cfor the purpose of providing liquidity to the financial system,\u201d some Members of Congress have expressed interest in\u2014while others have expressed opposition to\u2014the Fed using Section 13(3) to assist financially struggling entities, including states, municipalities, and territories of the United States.\nJeb Hensarling, former Chairman of the House Financial Services Committee, contends that \u201cDodd-Frank tried but failed to rein in the Fed\u2019s emergency lending authority.\u201d Legislation was passed by the House in the 114th Congress (H.R. 3189) and 115th Congress (H.R. 10) that would have further limited the Fed\u2019s authority under Section 13(3). Then-Federal Reserve Chair Janet Yellen contended that such restrictions would \u201cessentially repeal the Federal Reserve\u2019s remaining ability to act in a crisis.\u201d Current Fed Chairman Jerome Powell opposed further reducing the Fed\u2019s discretion under Section 13(3) on the grounds that the Fed needs \u201cto be able to respond flexibly and nimbly\u201d to threats to financial stability.", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "https://www.crs.gov/Reports/R44185", "sha1": "b5f0b499b80bd3f46dffacbb85dda64120f0f86d", "filename": "files/20200327_R44185_b5f0b499b80bd3f46dffacbb85dda64120f0f86d.html", "images": { "/products/Getimages/?directory=R/html/R44185_files&id=/2.png": "files/20200327_R44185_images_52c075bd6ead910821a6c31b7640bf956e053766.png", "/products/Getimages/?directory=R/html/R44185_files&id=/3.png": "files/20200327_R44185_images_014c968021a693c186fba48e2b7bb82a228703c2.png", "/products/Getimages/?directory=R/html/R44185_files&id=/1.png": "files/20200327_R44185_images_e54d5b855a3030d56fbad98b1caa866752a48b41.png", "/products/Getimages/?directory=R/html/R44185_files&id=/0.png": "files/20200327_R44185_images_313d779d6c29eb586de11211195c7dbdfe6045ad.png", "/products/Getimages/?directory=R/html/R44185_files&id=/4.png": "files/20200327_R44185_images_809ac4b301361404789c62c075389f2b59679baa.png" } }, { "format": "PDF", "encoding": null, "url": "https://www.crs.gov/Reports/pdf/R44185", "sha1": "f238774c046a50566a5647c3094945ab26fe6c11", "filename": "files/20200327_R44185_f238774c046a50566a5647c3094945ab26fe6c11.pdf", "images": {} } ], "topics": [ { "source": "IBCList", "id": 4891, "name": "Federal Reserve & Monetary Policy" } ] }, { "source": "EveryCRSReport.com", "id": 448514, "date": "2016-01-06", "retrieved": "2016-04-06T17:35:43.842224", "title": "Federal Reserve: Emergency Lending", "summary": "The deepening of the financial crisis in 2008 led the Federal Reserve (Fed) to revive an obscure provision found in Section 13(3) of the Federal Reserve Act (12 U.S.C. 344) to extend credit to nonbank financial firms for the first time since the 1930s. Section 13(3) provides the Fed with greater flexibility than its normal lending authority. Using this authority, the Fed created six broadly based facilities (of which only five were used) to provide liquidity to \u201cprimary dealers\u201d (certain large investment firms) and to revive demand for commercial paper and asset-backed securities. More controversially, the Fed provided special, tailored assistance exclusively to four firms that the Fed considered \u201ctoo big to fail\u201d\u2014AIG, Bear Stearns, Citigroup, and Bank of America. \nCredit outstanding (extended in the form of cash or securities) authorized by Section 13(3) peaked at $710 billion in November 2008. At present, all credit extended under Section 13(3) has been repaid with interest and all Section 13(3) facilities have expired. Contrary to popular belief, the Fed earned profits of more than $30 billion and did not suffer any losses on transactions authorized by Section 13(3). These transactions exposed the taxpayer to greater risks than traditional lending to banks through the discount window, however, because in some cases the terms of the programs had fewer safeguards.\nThe Fed\u2019s use of Section 13(3) in the crisis raised fundamental policy issues: Should the Fed be lender of last resort to banks only, or to all parts of the financial system? Should the Fed lend to firms that it does not supervise? How much discretion does the Fed need to be able respond to unpredictable financial crises? How can Congress ensure that taxpayers are not exposed to losses? Do the benefits of emergency lending outweigh the costs, including moral hazard? How can Congress ensure that Section 13(3) is not used to \u201cbail out\u201d failing firms? Should the Fed tell Congress and the public to whom it has lent?\nThe restrictions in Section 13(3) placed few limits on the Fed\u2019s actions in 2008. However, in 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203) added more restrictions to Section 13(3), attempting to ban future assistance to failing firms while maintaining the Fed\u2019s ability to create broadly based facilities. On December 18, 2015, the Fed promulgated a final rule implementing these changes. The Dodd-Frank Act also required records for actions taken under Section 13(3) to be publicly released with a lag and required the Government Accountability Office (GAO) to audit those programs for operational integrity, accounting, financial reporting, internal controls, effectiveness of collateral policies, favoritism, and use of third-party contractors. Although Section 13(3) must be used \u201cfor the purpose of providing liquidity to the financial system,\u201d some Members of Congress have expressed interest in\u2014while others have expressed opposition to\u2014the Fed using Section 13(3) to assist financially struggling entities, including states, municipalities, and territories of the United States.\nHouse Financial Services Committee Chairman Jeb Hensarling contends that \u201cDodd-Frank tried but failed to rein in the Fed\u2019s emergency lending authority.\u201d In the 114th Congress, legislation\u2014including H.R. 2625, H.R. 3189, and S. 1320\u2014has been introduced that would limit the Fed\u2019s discretion under Section 13(3). On November 19, 2015, H.R. 3189 was passed by the House. Section 11 of H.R. 3189 would require the approval of three-quarters of the Fed regional presidents to activate Section 13(3), tighten the definition of solvency, limit borrowers to financial firms, and provide a formula for setting the interest rate above market rates. Federal Reserve Chair Janet Yellen contends that this bill would \u201cessentially repeal the Federal Reserve\u2019s remaining ability to act in a crisis.\u201d A Fed governor has opposed further reducing the Fed\u2019s discretion under Section 13(3) on the grounds that the Fed needs \u201cto be able to respond flexibly and nimbly\u201d to threats to financial stability.", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "http://www.crs.gov/Reports/R44185", "sha1": "c0b607dc6e141aaaf1e13f0f77b6c1cccd809d9e", "filename": "files/20160106_R44185_c0b607dc6e141aaaf1e13f0f77b6c1cccd809d9e.html", "images": null }, { "format": "PDF", "encoding": null, "url": "http://www.crs.gov/Reports/pdf/R44185", "sha1": "4334c3e1ce5ade55bc9c8c5b20ad716be2eb09ba", "filename": "files/20160106_R44185_4334c3e1ce5ade55bc9c8c5b20ad716be2eb09ba.pdf", "images": null } ], "topics": [ { "source": "IBCList", "id": 237, "name": "Monetary Policy and the Federal Reserve" } ] }, { "source": "University of North Texas Libraries Government Documents Department", "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc795921/", "id": "R44185_2015Nov25", "date": "2015-11-25", "retrieved": "2016-01-13T14:26:20", "title": "Federal Reserve: Emergency Lending", "summary": "This report provides a review of the history of Section 13(3) of the Federal Reserve Act (12 U.S.C. 344), including its use in 2008. It discusses the Fed's authority under Section 13(3) before and after the Dodd-Frank Act. It then discusses policy issues and legislation to amend Section 13(3).", "type": "CRS Report", "typeId": "REPORT", "active": false, "formats": [ { "format": "PDF", "filename": "files/20151125_R44185_8de4c941f96cf98457ff8c0f9f43dc7f7ae55fee.pdf" }, { "format": "HTML", "filename": "files/20151125_R44185_8de4c941f96cf98457ff8c0f9f43dc7f7ae55fee.html" } ], "topics": [ { "source": "LIV", "id": "Finance", "name": "Finance" }, { "source": "LIV", "id": "Monetary policy", "name": "Monetary policy" }, { "source": "LIV", "id": "Federal reserve system", "name": "Federal reserve system" }, { "source": "LIV", "id": "Central banks and banking", "name": "Central banks and banking" } ] }, { "source": "University of North Texas Libraries Government Documents Department", "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc770585/", "id": "R44185_2015Sep08", "date": "2015-09-08", "retrieved": "2015-11-04T09:58:14", "title": "Federal Reserve: Emergency Lending", "summary": "This report provides a review of the history of Section 13(3) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act; P.L. 111-203), including its use in 2008. It discusses the Federal Reserve's (Fed's) authority under Section 13(3) before and after the Dodd-Frank Act. It then discusses policy issues and legislation to amend Section 13(3).", "type": "CRS Report", "typeId": "REPORT", "active": false, "formats": [ { "format": "PDF", "filename": "files/20150908_R44185_02e6c02e5ca7896dcb6196df5a38e5797dfc76a0.pdf" }, { "format": "HTML", "filename": "files/20150908_R44185_02e6c02e5ca7896dcb6196df5a38e5797dfc76a0.html" } ], "topics": [ { "source": "LIV", "id": "Finance", "name": "Finance" }, { "source": "LIV", "id": "Economic policy", "name": "Economic policy" }, { "source": "LIV", "id": "Federal reserve system", "name": "Federal reserve system" }, { "source": "LIV", "id": "Central banks and banking", "name": "Central banks and banking" } ] } ], "topics": [ "Economic Policy" ] }