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(Agencies)
Updated: 2008-03-18 16:28

In addition to providing support for the Bear Stearns sale, the Fed also announced Sunday one of the broadest expansions of its lending authority since the 1930s, saying it would allow securities dealers for at least the next six months to borrow directly from the Fed. That privilege, until now, had been confined to commercial banks.

At the same time, the Fed announced it was cutting the interest rate on those direct loans from the Fed, through a facility known as the Fed's discount window, by a quarter-point to 3.25 percent.

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In other moves, the Fed last week announced that it would lend up to $200 billion of Treasury securities that it owns to investment banks starting March 27 for a period of up to 28 days in return for a like amount of the investment banks' shunned mortgage-backed securities. The Fed also announced recently that it was boosting the size of special loans it has been making since December to commercial banks.

The scale of these actions underscored the threat facing the economy from a severe credit squeeze that began with a wave of defaults on subprime mortgages last year but has now spread to other parts of the credit markets, triggering multibillion-dollar losses by some of the country's largest financial institutions.

Analysts said it will take some time to determine whether the Fed has done enough to stem the wave of panic among investors.

The rapid decline of Bear Stearns stock — which had a market value of about $20 billion in January, only to collapse to a sales price of $2 per share, or about $236 million, this past weekend — has given investors the chills.

"The Fed is trying very hard to figure out how to calm the markets down, but so far it hasn't been very successful," said David Wyss, chief economist at Standard & Poor's in New York. "Markets are worried that there might be another Bear Stearns out there."

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