FED ADOPTS RULE TO PREVENT FUTURE AIG-SIZED BAILOUTS

The US Federal Reserve Board on Monday adopted new restrictions on making rescue loans to failing companies in a move designed to prevent a repeat of the $182bn bailout of AIG and to erase the idea of certain financial firms being “too big to fail”. Under the new rule, approved unanimously by the board, the Fed will be permitted extend emergency loans to at least five companies at a time in a more broad-based effort to help the financial system rather than individual companies. The new mandate was instituted in compliance with the 2010 Dodd-Frank financial reforms, which call for the Fed to pare back emergency loans for individual and insolvent companies. The Fed now regards an insolvent company as one that has failed to meet “undisputed” debt obligations for 90 days. “The ability to engage in emergency lending through broad-based facilities to ensure liquidity in the financial system is a critical tool for responding to broad and unusual market stress,” said Fed chair Janet Yellen.