The Federal Reserve headquarters in Washington September 16 2015. Reuters/Kevin Lamarque
The Federal Reserve Board will consider on Monday a proposal to curb its emergency lending powers, a change demanded by Congress after the central bank’s controversial decision to aid AIG (AIG.N), Citigroup (C.N) and others in 2008.
A proposed rule, to be considered by the Fed’s Washington-based board in an open meeting, would require that any future emergency lending be only “broad-based” to address larger financial market problems, and not tailored to specific firms.
The 2010 Dodd-Frank financial reform law instructed the Fed to curtail emergency loans to individual banks and prohibited it from lending to companies considered insolvent.
While some at the Fed worry the new rules will hamper the central bank’s response in future crises, some politicians have said the proposed regulations are too imprecise, for example in defining insolvency, to prevent the types of deals done in 2008.
As the financial crisis intensified in 2008, the Fed invoked its little-used emergency lending power to stave off the failure of AIG and Bear Stearns, and help other “too big to fail” companies including Citigroup and Bank of America (BAC.N).
The Fed also enacted a series of more general emergency programs, in all providing $710 billion in loans and guarantees. Those programs were separate from the much larger Fed asset and bond purchases known as quantitative easing.
The loans have been repaid and the guarantees ended, ultimately earning the Fed a net profit of $30…