Here’s an excerpt from an article on Bloomberg, interesting reading.
Kohn Signals Wall Street May Get Permanent Access to Fed Loans
By Scott Lanman and Anthony Massucci
May 30 (Bloomberg) — Federal Reserve Board Vice Chairman Donald Kohn raised the possibility of giving Wall Street securities firms permanent access to loans from the central bank, as long as regulators tighten oversight of the companies.
Kohn also advocated continuing Fed auctions of funds to commercial banks and loans of Treasuries to Wall Street dealers even after markets stabilize. Such channels would stay open “either on a standby basis or operating at a very low level,” he said in a speech in New York yesterday.
The remarks go beyond Fed Chairman Ben S. Bernanke, who has indicated the central bank would shut lending to investment banks when the credit crisis passes. Lawmakers and regulators are debating how to approach the supervision of investment banks in the aftermath of the Fed’s rescue of Bear Stearns Cos. in March.
“If you are a bondholder in one of these Wall Street firms, you know you have a big `Sugar Daddy’ now called the Federal Reserve that’s going to back you up,” said Jeff Pantages, chief investment officer of Alaska Permanent Capital Management in Anchorage, which oversees $1.8 billion in assets.
“But if you are a stockholder this kind of worries you” because investment banks “will be more highly regulated and won’t be able to use leverage as much as” before, he said.
Kohn said he hasn’t decided whether securities firms should continue to gain access to loans from the central bank. Read more here.
