WASHINGTON — Federal Reserve officials have moved to prevent the central bank from bailing out failing companies, a power it exercised during the 2008 financial crisis.
The Fed governors voted 5-0 Monday at a public meeting to downsize the Fed's emergency lending powers.
Only broad lending programs designed to revive frozen markets — not loans to individual firms — will be allowed. The Fed spent about $2 trillion on such a program to ease a credit crunch during the financial meltdown, aiming to spark lending to consumers and small businesses.
The 2010 law enacted by Congress overhauling financial regulation required the Fed to impose the restraints. Lawmakers of both parties had objected to the Fed's emergency aid to several big Wall Street banks and insurance giant American International Group.
"Emergency lending is a critical tool that can be used in times of crisis to help mitigate extraordinary pressures in financial markets that would otherwise have severe adverse consequences for households, businesses and the U.S. economy," Fed Chair Janet Yellen said before the vote.
The new rule takes effect Jan. 1.
For any emergency lending that the Fed does make, interest rates must be set high enough to encourage repayment as fast as possible.
See Tuesday's Arkansas Democrat-Gazette for full details.