Federal Reserve Finalizes Emergency Lending Constraints
The Federal Reserve published its final rule on emergency lending, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), on November 30, 2015. The rule establishes restrictions on the Federal Reserve’s ability to lend to private companies in times of financial crisis. In recent remarks, Federal Reserve Chair Janet Yellen said, “The ability to engage in emergency lending through broad-based facilities to ensure liquidity in the financial system is a critical tool for responding to broad and unusual market stresses. We have received helpful and constructive comments from many sources on a rule to implement these Dodd-Frank Act provisions.”
Pursuant to the Dodd-Frank Act, emergency lending programs must now be approved by the Treasury Department. The rule offers definitions of “broad-based” eligibility and “insolvency” to help determine whether or not a company would qualify for emergency loans in the future. It also requires a higher interest rate for repaid funds. On January 1, 2016, the rule will take effect.
Federal Reserve Press Release:
Federal Reserve Final Rule:
Chair Yellen’s Opening Statement: