Opening Statement on the draft final rule implementing amendments enacted by the Dodd-Frank Act to the Federal Reserve's emergency lending authority under section 13(3) of the Federal Reserve Act by Chair Janet L. Yellen

Good morning.  I would like to welcome our guests to the Federal Reserve as we consider a final rule to implement the Dodd-Frank Act's amendments to our emergency lending authority. 

Emergency lending is a critical tool that can be used in times of crisis to help mitigate extraordinary pressures in financial markets that would otherwise have severe adverse consequences for households, businesses, and the U.S. economy.  The Federal Reserve has long had this authority but has used it only sparingly and only in severe financial crises.  Most notably, during the recent severe financial crisis, the Federal Reserve established several broad-based emergency lending programs to provide liquidity to markets to ensure that credit continued to be available to U.S. households and businesses for mortgages, auto loans, credit card loans, student loans, and other forms of credit.

In the Dodd-Frank Act, Congress reviewed the scope of the Federal Reserve's emergency lending authority and determined to make significant modifications that enable the Federal Reserve to extend emergency credit only through broad-based facilities and programs designed to provide liquidity to the financial system.  The Dodd-Frank Act amendments eliminated the authority to lend for the purpose of aiding a failing firm or preventing a firm from entering bankruptcy or another resolution process, such as was done with loans to Bear Stearns and AIG.  In place of this authority to lend to specific firms, Congress enacted a framework for orderly resolution and provisions that encourage large financial firms to develop plans for their resolution in bankruptcy.

These modifications have been in effect since the passage of the Dodd-Frank Act, and would govern any lending pursuant to section 13(3). The ability to engage in emergency lending through broad-based facilities to ensure liquidity in the financial system is a critical tool for responding to broad and unusual market stresses. 

We have received helpful and constructive comments from many sources on a rule to implement these Dodd-Frank Act provisions.  In response to these comments, we have made significant changes to the proposed rule to ensure that our rule will be applied in a manner that aligns with the intent of the Congress and the Dodd-Frank Act.  Staff has also consulted with the Treasury Department in developing this final rule, as required by the Dodd-Frank Act. 

Laurie Schaffer will describe these changes.  Before I turn to Laurie, I would like to ask for unanimous consent that Governor Brainard, who has reviewed the memo, rule and other materials, but who is on travel today, be permitted to vote on this matter electronically.  I understand she expects to vote before the end of the meeting this morning.

With that consent, I now turn to Laurie Schaffer.