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Fed’s Emergency Lending Rule Leaves the Door Wide Open to Future Taxpayer-Funded Bailouts

Washington, Nov 30 -

Financial Services Committee Chairman Jeb Hensarling (R-TX) issued the following statement about the emergency lending rule adopted by the Federal Reserve on Monday:

“Five years after Dodd-Frank became law, ‘too big to fail’ is unfortunately alive and well and this rule from the Federal Reserve doesn’t change that.  Indeed, by leaving the door wide open to future taxpayer-funded bailouts, this final rule compounds the moral hazard problem that lies at the core of ‘too big to fail.’

“Emergency lending should not mean discretionary lending.  It should not mean the unaccountable and unelected in Washington pick winners and losers.  Vague rules and bureaucratic discretion are not the answer – they are the problem.  Instead, Congress can take a crucial step in preventing future bailouts by approving the House-passed FORM Act.  The FORM Act places needed constraints on the Fed’s emergency lending powers.  It restricts emergency loans to financial institutions only and makes sure they are provided at a ‘penalty rate’ so banks are not improperly subsidized.  The FORM Act injects greater accountability into the system by requiring not only a supermajority of Federal Reserve governors but also a supermajority of district bank presidents to approve any emergency loan.  By enacting these reforms, Congress can provide assurances to taxpayers that they will not have their pockets picked the next time the Fed decides to bail out a financial institution it decides is ‘too big to fail.’”