Particularly notable were the actions taken by the Federal Reserve (Fed) under its broad emergency lending authority, Section 13(3) of the Federal Reserve Act (12 U.S.C. 344). The Dodd-Frank Wall Street Reform and Consumer Protection Act (hereinafter, the Dodd-Frank Act; P.L. 111-203 ) limited the Fed's discretion under Section 13(3), but some Members of Congress believe that these changes were insufficient. It then discusses policy issues and legislation to amend Section 13(3), including H.R. Section 13(3) can also be used to authorize lending to banks. Credit outstanding (in the form of cash or securities) under Section 13(3) peaked at $710 billion in November 2008. Currently, all credit extended under Section 13(3) has been repaid with interest and all 13(3) facilities have expired. Contrary to popular belief, the Fed did not suffer any losses on transactions taken under Section 13(3) and earned profits of more than $30 billion (more than half of which is AIG related). Nevertheless, some of these transactions exposed the taxpayer to greater ex ante risks than the discount window because the terms of the programs had fewer safeguards—in some cases involving non-recourse loans and troubled asset purchases, for example. Broadly Based Facilities

The Fed created six broadly based facilities under Section 13(3) in 2008 to extend credit to all eligible borrowers within a particular class of nonbank financial firms or to a particular segment of financial markets:
The Term Securities Lending Facility (TSLF) and the Primary Dealer Credit Facility (PDCF) were created to assist primary dealers (a group of investment firms that are the Fed's counterparties for open market operations). Special Assistance to Firms Deemed "Too Big to Fail"

Section 13(3) was also invoked to provide exclusive, tailored assistance to prevent the disorderly failure of four large financial firms on an ad hoc basis:
In March 2008, the Fed assisted JP Morgan Chase's takeover of Bear Stearns to prevent the latter's failure. It required that 
at least five of the seven Fed governors find that there are "unusual and exigent circumstances" —while this phrase has no specific legal definition, it implies that financial conditions are not normal; the Fed may "discount (for) any individual, partnership, or corporation"—that is, assistance should take the form of a loan, and the loan may be made to private individuals or businesses; the borrower must present "notes, drafts, and bills of exchange endorsed or otherwise secured to the satisfaction of the Federal Reserve Bank"—that is, the loan must be backed by collateral approved by the Fed; the Fed shall charge an interest rate consistent with the same limitations applied to the discount window; and "the Federal Reserve Bank shall obtain evidence that such individual, partnership, or corporation is unable to secure adequate credit accommodations from other banking institutions"—that is, there must be evidence that the borrower does not have private alternatives. Changes in the Dodd-Frank Act

Concerns in Congress about some of the Fed's actions under Section 13(3) during the financial crisis led to the section's amendment in Section 1101 of the Dodd-Frank Act. The Fed's Rule Implementing the Dodd-Frank Act's Changes

As Section 13(3) can be used only in "unusual and exigent circumstances" and had not been used for decades, the Fed had not promulgated a rule governing its use as of 2008, even though it had the discretion to do so. On December 18, 2015, the Fed promulgated a final rule implementing Section 1101. Section 1102 allowed GAO to audit any action under Section 13(3) for operational integrity, accounting, financial reporting, internal controls, effectiveness of collateral policies, favoritism, and use of third-party contractors—but did not allow GAO to conduct an economic evaluation—and Section 1109 required GAO to conduct an audit of all Fed emergency facilities created between December 2007 and enactment. Who Should Have Access to the Lender of Last Resort? Lending to Nonbank Financial Firms? The Dodd-Frank Act now requires that assistance provided under Section 13(3) be "for the purpose of providing liquidity to the financial system, and not to aid a failing financial company." In 2008, the Fed chose to use Section 13(3) to provide credit mainly to financial firms, although nonfinancial firms were eligible to sell their commercial paper to the CPFF. One broader economic concern with Section 13(3) lending raised by House Financial Services Committee Chairman Jeb Hensarling is that "its use risks exacerbating moral hazard costs." How Much Discretion Should the Fed Be Granted? Because we cannot anticipate what may be needed in the future, the Congress should preserve the ability of the Fed to respond flexibly and nimbly to future emergencies. By reducing the Fed's discretion, Chair Janet Yellen has stated that H.R. 3189 would "essentially repeal the Federal Reserve's remaining ability to act in a crisis." By contrast, Chairman Hensarling believes that "Dodd-Frank tried but failed to rein in the Fed's emergency lending authority." What Rate Should the Fed Charge? Some Members of Congress have expressed an interest in revisiting this issue. Selected Legislation in the 114th Congress

		H.R. On November 19, 2015, it was passed by the House. H.R.
The deepening of the financial crisis in 2008 led the Federal Reserve (Fed) to revive an obscure provision found in Section 13(3) of the Federal Reserve Act (12 U.S.C. 344) to extend credit to nonbank financial firms for the first time since the 1930s. Section 13(3) provides the Fed with greater flexibility than its normal lending authority. Using this authority, the Fed created six broadly based facilities (of which only five were used) to provide liquidity to "primary dealers" (certain large investment firms) and to revive demand for commercial paper and asset-backed securities. More controversially, the Fed provided special, tailored assistance exclusively to four firms that the Fed considered "too big to fail"—AIG, Bear Stearns, Citigroup, and Bank of America.
Credit outstanding (extended in the form of cash or securities) authorized by Section 13(3) peaked at $710 billion in November 2008. At present, all credit extended under Section 13(3) has been repaid with interest and all Section 13(3) facilities have expired. Contrary to popular belief, the Fed earned profits of more than $30 billion and did not suffer any losses on transactions authorized by Section 13(3). These transactions exposed the taxpayer to greater risks than traditional lending to banks through the discount window, however, because in some cases the terms of the programs had fewer safeguards.
The Fed's use of Section 13(3) in the crisis raised fundamental policy issues: Should the Fed be lender of last resort to banks only, or to all parts of the financial system? Should the Fed lend to firms that it does not supervise? How much discretion does the Fed need to be able respond to unpredictable financial crises? How can Congress ensure that taxpayers are not exposed to losses? Do the benefits of emergency lending outweigh the costs, including moral hazard? How can Congress ensure that Section 13(3) is not used to "bail out" failing firms? Should the Fed tell Congress and the public to whom it has lent?
The restrictions in Section 13(3) placed few limits on the Fed's actions in 2008. However, in 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203) added more restrictions to Section 13(3), attempting to ban future assistance to failing firms while maintaining the Fed's ability to create broadly based facilities. On December 18, 2015, the Fed promulgated a final rule implementing these changes. The Dodd-Frank Act also required records for actions taken under Section 13(3) to be publicly released with a lag and required the Government Accountability Office (GAO) to audit those programs for operational integrity, accounting, financial reporting, internal controls, effectiveness of collateral policies, favoritism, and use of third-party contractors. Although Section 13(3) must be used "for the purpose of providing liquidity to the financial system," some Members of Congress have expressed interest in—while others have expressed opposition to—the Fed using Section 13(3) to assist financially struggling entities, including states, municipalities, and territories of the United States.
House Financial Services Committee Chairman Jeb Hensarling contends that "Dodd-Frank tried but failed to rein in the Fed's emergency lending authority." In the 114th Congress, legislation—including H.R. 2625, H.R. 3189, and S. 1320—has been introduced that would limit the Fed's discretion under Section 13(3). On November 19, 2015, H.R. 3189 was passed by the House. Section 11 of H.R. 3189 would require the approval of three-quarters of the Fed regional presidents to activate Section 13(3), tighten the definition of solvency, limit borrowers to financial firms, and provide a formula for setting the interest rate above market rates. Federal Reserve Chair Janet Yellen contends that this bill would "essentially repeal the Federal Reserve's remaining ability to act in a crisis." A Fed governor has opposed further reducing the Fed's discretion under Section 13(3) on the grounds that the Fed needs "to be able to respond flexibly and nimbly" to threats to financial stability.