New York (HedgeCo.Net) – In an effort to stabilize U.S financial markets and prevent further turmoil in the economy, Federal Reserve Chairman Ben Bernanke suggested expanding its control and authority over our country’s financial firms.
Bernanke spoke at a Federal Deposit Insurance Corp. conference regarding the improvement of mortgage lending yesterday, where he explained they were “currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end, should the current unusual and exigent circumstances continue to prevail in dealer funding markets."
Citing strains on short term funding markets, Bernanke said that the Federal Reserve will continue to improve the clearing and settling of default swaps and other derivatives. The economy took a blow last summer when borrowers started defaulted on subprime mortgages, causing the values of many securities to plummet in value.
“We aim not only to make the financial system better able to withstand future shocks, but also — by reducing the range of circumstances in which systemic stability concerns might prompt government intervention — to mitigate moral hazard and the problem of ‘too big to fail’," he explained.
Too big to fail of course referring to the Bear Stearns collapse and the subsequent rescue by JPMorgan that was backed by the Fed and $30 billion. Bernanke added that they may extend its emergency credit facility program into 2009, which provides financing to large investment banks and other financial institutions.
Amidst much criticism, Bernanke defended his stance on the Bear rescue in March when he explained how a default by Bear could’ve been “severe and extremely difficult to contain,” alluding to a domino effort.
Touching on the topic of mortgage lending, Bernanke says the Fed plans to launch a crucial rule on mortgage lending that will apply to all lenders. It will be voted on at the Fed’s board meeting on Monday.
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