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Fed could extend emergency lending to 2009 to combat credit crisis
Published in Saudi Press Agency on 08 - 07 - 2008


The US Federal Reserve may extend its
unprecedented lending to investment banks into next year in the face
of an ongoing credit crisis, Fed Chairman Ben Bernanke said Tuesday
as government-chartered mortgage lenders Fannie Mae and Freddie Mac
were scrambling to raise new capital, according to dpa.
Bernanke said the central bank's emergency lending provisions, set
up in March at the height of the credit crisis for a six-month
period, could be carried into 2009 if the financial sector's "unusual
and exigent circumstances continue to prevail."
Bernanke said the Fed was also working to improve government
oversight of financial markets and warned that indefinite lending
could encourage lax market standards in the long run.
"The Fed's decision to lend to primary dealers, although it was
necessary to avoid serious financial disruptions, could tend to make
market discipline less effective in the future," he said in a speech
in Virginia.
The Fed in March allowed financial institutions access to Treasury
securities that are usually reserved for commercial banks, and even
accepted damaged mortgage-backed securities as collateral for the
loans.
Investment banks and home lenders have reported billions of
dollars in writedowns of mortgage-related assets, as plunging housing
prices in the United States since 2007 forced a record number of
homeowners to default on their mortgages.
Fannie Mae and Freddie Mac, which together provide more than half
of US home loans, saw shares plummet by more than 16 per cent on
Monday after a Lehman Brothers analyst reported they needed to raise
about 75 billion dollars in fresh capital.
The two lenders have already reported a combined 11 billion
dollars in writedowns amid a continuing decline in the value of
mortgage-backed securities.


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