TEXT: Fed Minutes on Bear Stearns Rescue

Below are the minutes from two Federal Reserve meetings on the Bear Stearns rescue and extending loans to other Wall Street firms; one meeting taking place on March 14 and the other on March 16:

MINUTES OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
DATE: March 14,2008
TIME: 9:15 a.m.
LOCATION: Board Room
ATTENDANCE:
Mr. Bernanke, Chairman
Mr. Kohn, Vice Chairman
Mr. Warsh
Mr. Kroszner

Office of the Secretary
Ms. Johnson, Secretary
Mr. Frierson, Deputy Secretary
Ms. Beattie, Assistant to the Secretary

Board Members
Ms. Smith, Director
Mr. Skidmore, Assistant to the Board

Legal Division
Mr. Alvarez, General Counsel
Mr. Ashton, Deputy General Counsel

Division of Research and Statistics
Mr. Stockton, Director

Division of Monetary Affairs
Mr. Madigan, Director
Mr. Clouse, Deputy Director
Ms. Danker, Deputy Director
Mr. English, Deputy Director

Division of International Finance
Mr. Sheets, Director

Division of Banking Supervision and Regulation
Ms. Bailey, Deputy Director
Ms. Stefansson, Associate Director

Other Supporting Staff

FINANCIAL MARKETS -- Extension of credit to The Bear Stearns Companies Inc.

Discussed.
Approved.
March 14, 2008.

Today, the Board discussed the funding difficulties of The Bear Stearns
Companies Inc. (Bear Stearns), New York, New York, which controlled a primary
securities dealer, and the likely effects of its bankruptcy on financial markets, including
secured funding markets. Board members agreed that, given the fragile condition of the
financial markets at the time, the prominent position of Bear Stearns in those markets,
and the expected contagion that would result from the immediate failure of Bear
Stearns, the best alternative available was to provide temporary emergency financing to
Bear Stearns through an arrangement with JPMorgan Chase &Co., also in New York.
Such a loan would facilitate efforts to effect a resolution of the Bear Stearns situation
that would be consistent with preserving financial stability.

Given the unusual and exigent circumstances, the Board authorized the Federal
Reserve Bank of New York (New York Reserve Bank) to extend credit to JPMorgan
Chase Bank, National Association (JPMC Bank), Columbus, Ohio, on a nonrecourse
basis to provide financing to Bear Stearns, and, if the Reserve Bank in consultation with
Chairman Bernanke determined it was appropriate, to other primary securities dealers,
when the Reserve Bank finds that adequate credit accommodations are not available to
the borrower from other banking institutions. The credit should be secured to the
satisfaction of the New York Reserve Bank and should not exceed a period of 28 days.
The Board also approved the New York Reserve Bank's recommendation that the credit
to JPMC Bank to provide financing to Bear Stearns be extended at the rate for
discounts and advances under the primary credit program (primary credit rate).

As required by the Federal Reserve Act when fewer than five Board members
were available to approve an extension of credit to any individual, partnership, or
corporation under section 13(3) of the Federal Reserve Act, all available Board
members then in office unanimously determined, in connection with the authorization of
the extension of credit, that (1) unusual and exigent circumstances existed; (2) Bear
Stearns, and possibly other primary securities dealers, were unable to secure adequate
credit accommodations elsewhere; (3) this action was necessary to prevent, correct, or
mitigate serious harm to the economy or financial stability; (4) the other Board member
in office could not participate in the Board's action by any reasonable means at the time
Board action was required (Governor Mishkin was unavailable because he was in
transit from Helsinki, Finland, from 6:20 a.m. EDT to 5 p.m. EDT); (5) this action was
required before the other Board member could return and/or participate by any available
means; and (6) any credit extended will be payable on demand.

Participating in these determinations and voting for these actions:
Chairman Bernanke, Vice Chairman Kohn, and
Governors Warsh and Kroszner.

MINUTES OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
DATE: March 16, 2008
TIME:3:45 p.m.
LOCATION: Board Room
ATTENDANCE:
Mr. Bernanke, Chairman
Mr. Kohn, Vice Chairman
Mr. Warsh (participated by telephone)
Mr. Kroszner
Mr. Mishkin (participated by telephone)

Office of the Secretary
Ms. Johnson, Secretary
Ms. Beattie, Assistant to the Secretary

Board Members
Ms. Smith, Director
Mr. Blanchard, Assistant to the Board
Mr. Skidmore, Assistant to the Board

Legal Division
Mr. Alvarez, General Counsel
Mr. Ashton, Deputy General Counsel
Mr. Van Der Weide, Assistant General Counsel

Division of Monetary Affairs
Mr. Madigan, Director

Division of Banking Supervision and Regulation
Mr. Cole, Director
Ms. Bailey, Deputy Director
Ms. Stefansson, Associate Director

Federal Reserve Bank of New York
Mr. Geithner, President (participated by telephone)

FINANCIAL MARKETS -- Promotion of orderly market functioning through an
extension of credit to The Bear Stearns Companies Inc., establishment of a credit
facility for primary securities dealers, and other actions.
Discussed.
Approved.
March 16, 2008.

At its meeting on March 14,2008, the Board had authorized the Federal Reserve
Bank of New York (New York Reserve Bank) to extend credit to JPMorgan Chase & Co.
(JPMC) to provide financing on a nonrecourse basis to The Bear Stearns Companies
Inc. (Bear Stearns). both in New York, New York, and possibly to other primary
securities dealers. Today, Board members took up matters related to the acquisition of
Bear Stearns by JPMC and establishment of a primary securities dealer credit facility.

JPMC/Bear Stearns loan. In connection with the proposed JPMC/Bear Stearns
acquisition, and given the unusual and exigent circumstances, the Board authorized the
New York Reserve Bank to make a nonrecourse loan of up to $30 billion that would be
fully collateralized by a pool of Bear Stearns assets, if the Reserve Bank found that
adequate credit accommodations were not available to the borrower from other banking
sources. The loan must be fully secured to the satisfaction of the New York Reserve
Bank under terms to be finalized by the Reserve Bank. The Board also approved the
New York Reserve Bank's recommendation that the credit be extended at the rate for
discounts and advances under the primary credit program (primary credit rate).

The evidence available to the Board indicated that Bear Stearns would have
difficulty meeting its repayment obligations the next business day. Significant support,
such as an acquisition of Bear Stearns or an immediate guarantee of its payment
obligations, was necessary to avoid serious disruptions to financial markets. Although
many potential investors had been invited to invest, Bear Stearns had determined that
JPMC was the most suitable bidder. JPMC had requested assistance in financing a
specific pool of assets that Bear Stearns had difficulty financing in the market and that
JPMC believed added significant uncertainty to the level of risk it would assume at the
same time it was acquiring the remainder of Bear Stearns. The discussion of the Board
members included a consideration of probable terms of financing those assets, the
position of the Department of the Treasury, and the authority for the financing.

Temporary exemptions from section 23A and capital requirements. In
connection with the proposed JPMC/Bear Stearns acquisition, the Board granted an
18-month exemption requested by JPMorgan Chase Bank, National Association
(JPMC Bank), Columbus, Ohio, from the requirements of section 23A of the Federal
Reserve Act and the Board's Regulation W for certain extensions of credit or
guarantees between JPMC Bank and Bear Stearns or any other affiliate of JPMC Bank
regarding Bear Stearns assets. The exemption would apply only (1) for extensions of
credit or guarantees that are fully collateralized and marked to market and remargined
daily, (2) if JPMC guaranteed the performance of the affiliate for the benefit of JPMC
Bank in connection with any exempt transaction, and (3) up to an aggregate amount of
50 percent of JPMC Bank's capital stock and surplus. The amount of the exemption
would also decrease as assets of Bear Stearns were sold or matured. The Board
delegated to the director of the Division of Banking Supervision and Regulation and the
General Counsel, in consultation with the chairman of the Committee on Supervisory
and Regulatory Affairs, authority to make minor modifications in the terms of this
exemption.

The Board also granted an 18-month exemption to JPMC from the Board's risk-based
and leverage capital requirements for bank holding companies. The exemption
would allow JPMC to exclude the assets and exposures of Bear Stearns from its risk-weighted
assets for purposes of applying the risk-based capital requirements at the
parent bank holding company. JPMC would also be allowed to exclude the assets of
Bear Stearns from the denominator of its tier 1 leverage capital ratio for purposes of
applying the tier 1 leverage capital requirements at the parent bank holding company.
The amount of each exemption would be reduced over time.

New credit facility for primary securities dealers. Given the unusual and exigent
circumstances, the Board authorized the New York Reserve Bank to establish a facility
to extend credit to primary securities dealers. Primary securities dealers would be able
to access the new facility through each dealer's clearing bank. The credit must be
secured to the satisfaction of the New York Reserve Bank and may be secured with a
broad range of investment-grade debt securities. Credit under the new facility would be
extended overnight and would be with recourse beyond the collateral to the primary
securities dealer. The New York Reserve Bank must collect evidence that adequate
credit accommodations are not available to the borrower from other banking sources.
The Board also approved the New York Reserve Bank's recommendation that credit
extended through the new facility would be at the primary credit rate.

The Board's decision to establish a facility for primary securities dealers was
based on recent, rapidly changing developments. These developments demonstrated
that there had been impairment of a broad range of financial markets in which primary
dealers finance themselves. The available evidence also indicated that the dealers
might have difficulty obtaining necessary financing for their operations from alternative
sources. During their discussion of the new facility, Board members considered
whether six months was an appropriate initial duration for the facility I and they asked
about provisions in the new facility for protecting the Federal Reserve against credit risk.

Other actions. As noted in the discount rate minutes of today's meeting, the
Board approved the request of the New York Reserve Bank for a reduction in the
primary credit rate from 3-1/2 percent to 3-1/4 percent. In addition, the Board
authorized an increase in the maximum maturity of loans under the primary credit
program to 90 days (currently 30 days). The Board also approved the issuance of a
press release that would announce the establishment of a primary securities dealer
credit facility, the reduction in the primary credit rate and increase in the maximum
maturity of primary credit loans, and the Board's approval of the financing arrangement
announced by JPMC and Bear Stearns.

Participating in these determinations and voting for these actions:
Chairman Bernanke, Vice Chairman Kohn, and
Governors Warsh, Kroszner, and Mishkin.