The Reluctant Fed

by Thomas L. Hogan
The American Institute for Economic Research

When members of Congress asked the Federal Reserve to provide emergency loans to nonbank companies, they did not like the response. “The Federal Reserve would be extremely reluctant to extend credit,” the Fed chair said. “Questions of industrial policy are best resolved by Congress.”

Of course, that was not current Fed Chair Jerome Powell. It was former Chair Ben Bernanke.

During the 2008 financial crisis, politicians pressured the Fed to extend emergency loans to failing US automakers, particularly General Motors (GM). Although section 13(3) of the Federal Reserve Act does authorize the Fed to lend to nonbank companies in times of “unusual and exigent circumstances,” such powers are granted with the intent of protecting the financial system by providing assistance only to businesses with direct ties to struggling US banks.

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