Fed Was Ready to Lend to Wall Street Dealers Before March 16

The Federal Reserve was ready to lend to additional Wall Street brokers besides Bear Stearns Cos. on March 14, a day after the central bank was told that the firm needed emergency funding to avoid filing for bankruptcy.

The Fed gave itself the authority to aid investment banks before it announced on March 16 that the companies could take out direct loans from the central bank in a similar way to commercial banks. The disclosure came in an April 8 letter from the Fed to Senate Banking Committee Chairman Christopher Dodd that was obtained by Bloomberg News.

If Chairman Ben S. Bernanke and the New York Fed find it ``appropriate,'' the central bank may lend ``to other primary securities dealers,'' the letter said. The letter said the authority would apply where the New York Fed ``finds that adequate credit accommodations are not available to the borrower from other banking institutions.''

Bernanke and other Fed officials have omitted the broader approval from previous statements and testimony on their March 14 decision to rescue Bear Stearns. Two days later, they opened up lending to investment banks at the same so-called discount rate used by commercial banks.

The letter explaining the decision was required under a clause added in 2002 to the Federal Reserve Act. The Federal Reserve Board has to give the chairmen of the Senate Banking and House Financial Services panels a written explanation of why it took action with fewer than five votes in a situation where five are normally required, such as this one.

Only four of the five current Fed governors voted for the decision detailed in the letter. Fed Governor Frederic Mishkin was traveling from Helsinki to the U.S. from 6:20 a.m. Washington time, the letter said. The board currently has two vacancies on the seven-member panel; Dodd has yet to hold votes on nominees for the positions.