Treasury Official Hints That New Fed Facility Might End

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Just one day after Merrill Lynch chief John Thain urged that the Federal Reserve borrowing facility for securities firms be made permanent, a treasury official sounded the warning that this new investment banking borrowing window may be closed when it ends its initial run in September.
Under Secretary Robert Steel, whose bailiwick covers the domestic financial system, seemed to have crafted his remarks as a response to Thain's. Yesterday Thain told attendees at a Wall Street Journal dealmakers conference in midtown Manhattan that he hoped the facility would be continued after its scheduled expiration. Speaking a the same conference today, Steel went out of his way to emphasize that the facility is temporary.
After he referred to the facility as the "temporary borrowing facility for primary broker-dealers," Steel added: "Notice the first word in that phrase is temporary."
When the moderator pointed out that Thain hadn't used the word "temporary" when discussing the facility the day prior, Steel acknowledged that his remarks diverged from Thain's.
"Notice I just used the word twice," he said.
Steel left open the possibility that the window could remain open after expiration, adding that the regulatory framework for institutions permitted to borrow from the window remains unclear. The major commercial banks--including, most recently, Bank of America CEO Ken Lewis speaking to the conference this morning--have urged that investment banks be subject to the same regulations that restrict commercial banking. Yesterday Thain said he thought a less restrictive regulatory framework was more appropriate.

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