NEW YORK (MarketWatch) -- The Federal Reserve is exploring backup options to extend its lending power in case the recent plans it has implemented to loosen the credit markets are unsuccessful, The Wall Street Journal reported on Wednesday.
These backup plans include having the Treasury borrow more money than necessary to fund the government and keep the excess proceeds on deposit at the Fed; issuing debt under the Fed's name instead of the Treasury's; and asking Congress for authority for the Fed to pay interest on commercial-bank reserves instead of waiting until a previously enacted law permits it in 2011, the report said.
Nothing is expected to happen right away, the Journal said, because the Fed still has enough balance sheet room for additional lending now. These internal talks are part of a broader effort at the Fed, similar to what is under way at foreign central banks, to determine its options if problems in the credit markets worsen, the paper said.
Fed officials believe the availability of such options would largely eliminate the risk of exhausting its Treasury bond stockpile, which would lead to it losing its ability to backstop the financial system, as some on Wall Street fear, the Journal reported
