The Federal Reserve expects to get full repayment from its 2008 emergency loans to rescue insurance giant AIG and back the purchase of brokerage Bear Stearns, chairman Ben Bernanke said Wednesday.
Bernanke, in remarks prepared for delivery to a congressional hearing, said the two bailouts left the Fed holding loans of around 116 billion dollars, or around five percent of the central bank’s balance sheet.
“The Federal Reserve expects these exposures to decline gradually over time,” Bernanke said. “The (Federal Reserve) Board continues to anticipate that the Federal Reserve will ultimately incur no loss on these loans as well.”
The Fed provided an emergency loan of 85 billion dollars to AIG to stave off a potentially calamitous collapse in September 2008. That was the first stage of a government bailout worth more than 180 billion dollars.
For Bear Stearns, the Fed backed 30 billion dollars in troubled assets to help pave the way for a purchase of the troubled Wall Street firm in March 2008 by JPMorgan Chase.
Bernanke noted that the Fed acted in these two cases “to help avoid the disorderly failure of two systemically important financial institutions” despite the lack of a legal framework.
“To preclude any future need for the Federal Reserve to lend in similar circumstances, we strongly support the establishment of a statutory regime for the safe resolution of failing, systemically important nonbank financial institutions.”
