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Fed loosens requirements on collateral

March 21, 2008|From Times Wire Services

The Federal Reserve said securities firms could pledge a wider array of risky mortgage-related assets than first disclosed under a Fed program created to help Wall Street cope with the credit crunch.

Under the auction program, announced March 11, the Fed will lend major securities firms Treasury securities and accept highly rated mortgage holdings as collateral.

On Thursday the Fed said that collateral now could include securities linked to commercial-property loans and some issues of complex instruments known as collateralized mortgage obligations.

The goal of the swap program is to bolster the securities firms' balance sheets with highly liquid Treasury securities, in the hope that they will make more credit available to their own customers.

The Fed set the amount of the first auction, scheduled for Thursday, at $75 billion.

Under a separate program launched Monday after the near-collapse of Bear Stearns Cos., the Fed is lending cash to big Wall Street firms on an overnight basis, marking the Fed's first loans to nonbank firms since the Great Depression. Acceptable collateral for those loans includes investment-grade corporate securities, municipal securities and mortgage-backed securities.

The Fed said it lent a daily average of $13.4 billion this week under that program. On Wednesday, the figure was $28.8 billion.

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