WASHINGTON–The Federal Reserve has adopted a new rule that puts limits on its ability to make emergency loans to banks.
Analysts say the move does not mean, however, that many of the nation’s largest banks are not “too big to fail.”
Under the new rule adopted by the Fed, any bank that is entering bankruptcy or even appears to be entering bankruptcy, cannot receive emergency funds under any circumstances. During the financial crisis, emergency funds from the Fed essentially propped up the otherwise failing Bear Stearns and IAG.
The move by the Fed has the backing of a number of politicians, including Sen. Elizabeth Warren (D-MA), who believes the Fed could have gone even further.
"There are still loopholes that the Fed could exploit to provide another back-door bailout to giant financial institutions," Warren told CNNMoney.
Among the caveats in the new Fed position is that it will use its own measures to judge whether a firm qualifies for emergency aid.