New Fed rule limits its crisis bailout powers | Reuters

(REUTERS) Howard Schneider, December 1, 2015 — The Federal Reserve Board on Monday adopted a rule that stops it from bailing out individual companies, a change that Congress demanded after the central bank’s controversial decision to help rescue American International Group (AIG.N) and others during the financial crisis.

The rule is designed to help end the notion of individual financial companies being “too big to fail,” by allowing the Fed to rescue only the broader financial system instead of individual companies. Under the rule, the Fed can make emergency loans that can potentially be used by at least five companies, but it cannot make more ad hoc rescues like its efforts to save AIG during the crisis.

The Fed adopted the rules after the 2010 Dodd-Frank financial reform law required the central bank to curtail emergency loans to individual companies and to insolvent companies. The final regulations define insolvent companies as those that had failed to pay “undisputed debts” in the previous 90 days.

Source: New Fed rule limits its crisis bailout powers | Reuters