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Fed Puts New Limitations on Bank Bailouts

Joe Mont | November 30, 2015

The Federal Reserve Board has clarified its procedures for emergency lending to banking institutions and placed new restrictions on future bailouts that were required by the Dodd-Frank Act.

Among the limitations included in the Dodd-Frank Act as a response to critics of financial crisis bailouts were that emergency lending only be extended in "unusual and exigent circumstances" and to programs and facilities with “broad-based eligibility.” The Federal Reserve Bank must also obtain evidence that the borrower is unable to secure adequate credit from other banking institutions.

A final rule approved by the Federal Reserve Board on Monday defines "broad-based" to mean a program or facility that is not designed for the purpose of aiding any number of failing firms and in which at least five entities...

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