Elizabeth Warren and David Vitter propose rules to curtail backdoor bank bailouts

Reforming the Federal Reserve’s Rescue Authority

The most publicized bailout of the financial crisis was the TARP bill that provided capital injections to a wide range of banks. But most of the assistance to financial firms was provided through a less publicized set of emergency lending programs authorized by Section 13-3 of the Federal Reserve Act. This emergency lending authority supported the Fed’s rescue of AIG, a massive set of guarantees for Citibank, which would have failed without them, and an alphabet soup of lending ‘facilities’ that supported a small set of Wall Street dealers with almost unlimited cheap credit for a period of years.

When Congress examined this issue during the Dodd-Frank Act, they placed new limits on emergency lending that are contained in Section 1101 of the legislation. These limits are clearly intended to limit 13-3 lending to programs that are truly broad based (as opposed to bailing out a small set of insider Wall Street institutions) and to exclude the use of the program for bailouts of institutions that are actually insolvent. Join us as we discuss whether Dodd-Frank’s limitations to the Fed’s 13-3 powers went too far, or not far enough.

Samuelson: The weakened Fed

... proposed legislation by liberal Democratic Sen. Elizabeth Warren of Massachusetts and Republican Sen. David Vitter of Louisiana. It would impose new requirements on the Fed before it could lend to ailing financial institutions. The aim is to prevent “backdoor bailouts.” But in practice, argues former Fed chairman Ben Bernanke on his blog, it would hamstring the Fed’s ability to prevent banking panics.

Elizabeth Warren and David Vitter? Speaking at the libertarian CATO institute about bank regulations? Seems like all sides have had it with Wall Street.