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Fed Quietly Investigated Lehman Rumor: WSJ

The Federal Reserve called Credit Suisse last month to check a rumor that the bank was preparing to pull a line of credit for Lehman Brothers, the Wall Street Journal reported on its web site on Thursday.

Credit Suisse told Fed officials the rumor was unfounded and that the bank had no intention of pulling the line of credit, people familiar with the matter told the paper.

The Fed acted this way to try to stop the spreading of rumors like the ones which eventually forced the sale of Bear Stearns in March to JP Morgan to save it from collapse, the Wall Street Journal said.

Last month, the Securities and Exchange Commission put a limit on naked short-selling -- short-selling of shares without borrowing them first -- of 19 financial stocks, including that of Lehman, to prevent abuses, but this rule expired last week.

Lehman Brothers, which has more than $60 billion of mortgage and mortgage security exposure, is under pressure to raise capital. Analysts have said the Wall Street bank could write down $4 billion and some have predicted that Lehman will be the next financial institutional to fail.

But others said the Federal Reserve will not allow it to fail as it is too big and its collapse would pose a risk to the whole U.S. banking system.


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