Effective Jan. 1, the Federal Reserve will not be allowed to bail out failing companies. Members of the Fed board voted 5 to 0 in favor of restricting the policy.
The new policy will restrict the Fed from lending to individual firms, and will instead focus its efforts on broad lending programs to revive the market. In emergency situations, the Fed will grant exceptions, but the interest rates for such loans will be high enough to provoke a quick repayment.
Before the vote, Fed Chair Janet Yellen said “emergency lending is a critical tool that can be used in times of crisis to help mitigate extraordinary pressures in financial markets that would otherwise have severe adverse consequences for households, businesses and the U.S. economy.”