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Financial Reform and the Fed's Bailout Capability

June 17, 2010 - by Hilary Worden

Included among the financial reforms that may soon become law is an attempt to restrict the Fed's ability to bail out failing companies by changing a small but important paragraph in the Federal Reserve Act: section 13.3. 13.3 gives the Federal Reserve significant latitude in making emergency loans and is, for instance, what made possible the $29 billion loan to JPMorgan Chase in 2008. The financial reform bills passed by the House and Senate both include a number of additions and modifications to the paragraph, and whatever bill is eventually signed would likely significantly reduce the freedom of the Board to make such loans.

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