The Federal Reserve said it was making it easier for financial institutions to access Fed liquidity by easing terms on its borrowing facilities and accepting a much wider range of assets as collateral. The Fed meets to decide on interest rates on Tuesday. It widened the set of assets eligible as collateral for loans of Treasuries to include all investment grade paper, and raised the size of these Treasury loans to $200bn.
The Fed also suspended rules that prohibit banks from using deposits to fund their investment banking subsidiaries.
Was this the quid pro quo for Band of America buying Merrill? If so, repercussions will extend beyond BofA. This is a time when the federal authorities need to be vigilant, not lax about banks taking risk with depositors' funds.
P.S. Ken Lewis on TV right now telling everyone that everything will be great (BofA headquarters will remain in Charlotte). His eyes are so dilated; he looks scared.
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