INDUSTRY NEWS
Investment Banks Split on Trading Stricter Rules for Borrowing Access
May 28, 2008
Source:The Financial Times
Washington, D.C.--U.S. investment banks are divided about whether or not ongoing access to a special Federal Reserve borrowing facility is worth the cost--which will most likely include increased regulation by the Federal Reserve, the Financial Times reports.
Investment banks that haven't been greatly affected by the credit crunch, like Goldman Sachs, are reportedly against any more Fed limits; however, banks such as Lehman Brothers, which have been hurt by credit woes, may be more open to accepting risk limits to allow continued use of the central bank facility.
Although none of the banks gave an official comment, the conflict is about to come to a head because the Fed said it will reduce investment banks' ability to borrow from the primary dealer credit facility--similar to the discount window that exists for commercial banks--in September.
The Fed initiative lets investment banks to promise investment-grade securities--which include mortgage-backed securities--in exchange for low-interest cash loans to prevent banks from experiencing the same loss of short-term liquidity that crippled Bear Stearns.
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