Alert December 30, 2013

FRB Issues Proposed Rule that Limits its Emergency Lending Powers in Accordance with Sections 1101 and 1103 of Dodd-Frank Act

The FRB issued a proposed rule (the “Proposed Rule”) that would implement sections 1101 and 1103 of the Dodd-Frank Act by amending the FRB’s Regulation A (Extensions of Credit by Federal Reserve Banks) and would generally limit the FRB’s emergency lending authority under section 13(3) of the Federal Reserve Act (“Section 13(3)”) to extensions of credit under “unusual and exigent circumstances” that involve “programs and facilities that relieve liquidity pressures in financial markets through broad-based liquidity facilities,” and that do not serve to aid an individual failing financial institution.  To assist in the determination of whether a program or facility is one with “broad-based eligibility,” the Proposed Rule provides a definition of “broad-based eligibility” that requires that an eligible program or facility:

  1. be designed to provide liquidity to an identifiable market or sector of the financial system;
  2. not be for the purpose of aiding a failing financial company and not be structured to remove assets from the balance sheet of a single and specific company; and
  3. not be established for the purpose of assisting a single or specific company to avoid bankruptcy, resolution under Title II of the Dodd-Frank Act, or any other federal or state insolvency.

Sections 1101 and 1103 of the Dodd-Frank Act as implemented by the Proposed Rule, among other things, also require the FRB to obtain the approval of the Secretary of the Treasury before extending emergency credit under Section 13(3).  The FRB stated that it consulted with the Department of the Treasury in the development of the Proposed Rule.

Comments on the Proposed Rule must be submitted to the FRB by March 7, 2014.