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11.1 Emergency Lending Authority to Be Used Only to Provide Broad-based Liquidity

<< Title XI Overview

11.1 Emergency Lending Authority to Be Used Only to Provide Broad-based Liquidity

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            11.1.     Emergency Lending Authority to Be Used Only to Provide Broad-based Liquidity.  The Act limits the Fed's emergency lending authority to a program or facility with broad-based eligibility.  Such authority may be exercised solely for the purpose of providing liquidity to the financial system and not to assist a failing financial company.  Loans must be adequately secured to protect taxpayers from losses, and any emergency lending program must be terminated in a timely and orderly fashion.  In a notable restriction on the independence of the Fed, the Act provides that the Fed may not establish such an emergency lending program without the prior approval of the Treasury Secretary. [§1101]

                        11.1.1. Prohibited Borrowers and Programs.  Any emergency lending program or facility must prohibit participation by insolvent borrowers.  A program or facility that is structured to remove assets from a single, specific company's balance sheet or to assist a single, specific company to avoid bankruptcy, receivership under Title II, or any other insolvency proceeding will not be considered to be a program or facility with broad-based eligibility. 

11.1.2. Report to Congress:  The Fed is to report to the House and Senate banking committees within seven days of providing emergency assistance and provide updates every 30 days thereafter.

11.1.3.  Fed Claims in Event of an Outstanding Loan Recipient Being Placed in Receivership.  The Fed's claim against any entity that defaults on a loan from the Fed and that is placed in receivership under Title II will have priority in the liquidation process.