Monday, March 17, 2008

Fed Working Overtime This Weekend

by Nancy Osborne, COO of ERATE


In order to head off the global market repercussions that a collapse at Bear Stearns would surely have, the Fed worked through the weekend to help facilitate an acquisition deal between Bear Stearns and JPMorgan Chase. Just last Friday the Fed, in conjunction with JPMorgan Chase, worked quickly to save Bear Stearns from the brink of insolvency and over the weekend the Fed made further strides by offering special financing to JPMorgan Chase so it can proceed with an acquisition of Bear Stearns. Many details have yet to be disclosed but it appears that the Fed will fund up to $30 billion of Bear Stearns illiquid mortgage-backed assets and that JPMorgan Chase will acquire the battered 85 year old institution for approximately $236 million. Then as added insurance, the Fed moved to cut the discount rate, that is the interest rate which banks are charged on loans received through their regional Federal Reserve Bank's discount window, from 3.50% to 3.25%. It is hoped this move will help prevent the deepening crisis from spreading even further as financial markets re-open on Monday. The Fed is also expected to cut the fed funds rate, that is the interest rate which banks charge each other for overnight loans, when it holds its scheduled FOMC meeting this coming Tuesday and Wednesday.
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