2019-05-04 —

"The enacted 1991 amendment to Section 13(3) authorized the Fed to make emergency loans to nonbanking firms as long as those loans are `secured to the satisfaction of the [Fed],' and the amendment also gave the Fed broad discretion to accept almost any type of collateral from the borrowing firms."


During Cohen's interview with the FCIC, he is asked if the Fed's financial assistance with Bear was the first time the Fed had used its 13(3) authority to help a nonbank. Cohen states that "To my knowledge it is the first time and the initial but fleeting reaction was we've never done it before, what sort of precedent are we creating for ourselves."

It was not the first time the Fed had used 13(3) to assist a nonbank. It was simply the first time the Fed had showered money like a drunken sailor with an unlimited ATM card to the Fed's discount window. According to a history provided by David Fettig, a Senior Advisor to the Minneapolis Fed, Section 13(3) "was used sparingly, and just 123 loans were made" from 1932 to 1936. The loans totaled $1.5 million -- that's $27.3 million in today's dollars. The 1936 loans were the last time 13(3) was invoked until 2007.

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