Posted on 08/25/2007 5:04:49 AM PDT by Hydroshock
NEW YORK (Fortune) -- In a clear sign that the credit crunch is still affecting the nation's largest financial institutions, the Federal Reserve agreed this week to bend key banking regulations to help out Citigroup (Charts, Fortune 500) and Bank of America (Charts, Fortune 500), according to documents posted Friday on the Fed's web site.
The Aug. 20 letters from the Fed to Citigroup and Bank of America state that the Fed, which regulates large parts of the U.S. financial system, has agreed to exempt both banks from rules that effectively limit the amount of lending that their federally-insured banks can do with their brokerage affiliates. The exemption, which is temporary, means, for example, that Citigroup's Citibank entity can substantially increase funding to Citigroup Global Markets, its brokerage subsidiary. Citigroup and Bank of America requested the exemptions, according to the letters, to provide liquidity to those holding mortgage loans, mortgage-backed securities, and other securities.
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Conrad DeQuadros of Bear Stearns offers perspective on the Fed's interest rate decision and the reaction on Wall Street. Play video
This unusual move by the Fed shows that the largest Wall Street firms are continuing to have problems funding operations during the current market difficulties, according to banking industry skeptics. The Fed's move appears to support the view that even the biggest brokerages have been caught off guard by the credit crunch and don't have financing to deal with the resulting dislocation in the markets.
(Excerpt) Read more at money.cnn.com ...
Will someone explain what all this means.
I need a $10 million loan and I have this large box for collateral. I know that it smells like cr*p, but..., "trust me", it is filled with very valuable mortgage obligations!
I think it means that the fed is trying to do everything it can to prop up the banking sector with out doing a rate cut. They still think as I do that inflation is a real worry. And they are trying to ease pressure to get liquidity up without adding to inflation with a rate cut.
What we have here is shaping up not to be a liquidity problem but a problem with banks hold a lit of paper no one wants. To illustrate if you hare selling oranges and have a good deal on good oranges, but I do not want oranges they you do not get any money. It is not that I have no money, I just choose not to spend it on your wares.
Citigroup is central in the drug/ money laundering operations of the US Government. They are a National Interest asset and too important to let go under.
Citi to the rescue!
Like the S&L bailout the object is to cover the lenders not the borrowers. ANd there is a real danger you and I as taxpayers will pay for part of this. There already have been high placed voices calling for a government bailout.
It is very telling. But I do have doubt if Citi, WaMu, BofA, Wachovia, and Wells Fargo will go under. They ahve other revenue streams. But I do expect them to feel the effects of their bad loans adn hear of more lay offs.
Tell me if I'm wrong, but when the Fed "loans" money. It is increasing the amount of money in circulation by printing more, and if this is done when there is no need to cover an increase in economic output, it too fuels inflation. A higher interest rate is a brake on this, but too much lending would still produce inflation.
The size of this does surprise me. That's real money, even for Citibank.
I would assume that the Fed is seeing something here that would warrant such exceptional lending.
“And they are trying to ease pressure to get liquidity up without adding to inflation with a rate cut.”
I still think this is insolvency not liquidity that is the problem. Throwing all the money in the world and there’s a world of money out there, to solve the crunch is not going to solve the problem when the rules of lending have changed dramatically.
I wonder if TXU is a go or is the new lending world finally looking at outcomes?
You're right, but this is more about protecting their egos than inflation.
The brokerage part of citi is Smith Barney and the private bank; both quite healthy.
This is why I do not expect to see a rate cut in Sptember.
I imagine the banks are telling the Fed explicitly what's going on.
That is correct! It is a mere "coincidence" that M3 data is no longer available! Pay no attention to the man behind that curtain!!!
They’ll hold off until reality smacks them in the head.
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