The Federal Reserve: The Central Bank conditioned by the ongoing credit crisis which sealed today the fate of the beleaguered investment bank Lehman Brothers (LEH), in another landmark step to address potential market vulnerabilities, announced Sunday the expansion of its lending facilities. The Fed now says that it will accept a wider array of securities, including equities, as collateral for its loans. The collateral eligible to be pledged at the ‘Primary Dealer Credit Facility’ has been broadened to closely match the types of collateral that can be pledged in the tri-party repo (the lifeblood of the brokerage industry) systems of the two major clearing banks. Also, the collateral for the ‘Term Securities Lending Facility’ has been expanded and will now include all investment-grade debt securities. Previously, only Treasury securities, agency securities, and AAA-rated mortgage-backed and asset-backed securities could be pledged. The Fed, in its announcement, noted that it believed that the enhancement of these lending facilities will support the liquidity of primary dealers and financial markets more effectively. [The Fed]
Associated Press: In an effort to reduce a credit shortage that threatens global financial markets, a consortium of ten banks which include JPMorgan (JPM), Goldman Sachs (GS) and Morgan Stanley (MS), announced late Sunday a $70 billion loan program that financial co.’s can tap to help ease their borrowing needs. The banks said they were committing $7 billion each for the pool. The size of the loan program, notes AP – might increase as “other banks are permitted to join.” All participating banks will begin to use this facility starting this week. The banks made the announcement as they try to minimize the negative effects that Lehman’s collapse will have over markets. [AP]
“The U.S. financial system is finding the tectonic plates underneath its foundation are shifting like they have never shifted before,” said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey. “It’s a new financial world on the verge of a complete reorganization”. [Via Reuters]
The Wall Street Journal: Insurer American International Group Inc. (AIG), faced with investor pressure that drove its shares down more than 30% on Friday alone, is devising a plan structured towards raising more capital by selling off some of its most valuable assets, and going to the Federal Reserve for help. During the weekend, notes WSJ – AIG turned down a capital infusion from a group of private-equity firms led by J.C. Flowers & Co. An option tied to the offer would have effectively given them control of the co. Two other private-equity firms: Kohlberg Kravis Roberts & Co. and TPG have also offered capital injection into AIG but only under the condition that Fed provides the insurer with a bridge loan until its restructuring plan is completed. The Fed had yet to response whether or not will offer its assistance to AIG which at the end of the Q2’08 had over $1 trillion in assets. [WSJ]
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