The New York Federal Reserve intervened aggressively to shore up the US financial system this week, providing at least $US87 billion to help underpin trades with bankrupt Lehman Brothers, court documents show.
The Fed's action is the latest sign of how US authorities have been seeking to prop up financial markets following the failure of Lehman and as big insurer American International Group fights for survival.
While the government had pledged not to fund a rescue of Lehman, the disclosure on Tuesday showed authorities that were taking other financial steps to prevent markets from descending into chaos.
JPMorgan Chase advanced $US87 billion to Lehman on Monday to help clear and facilitate securities transactions with customers and clients of Lehman ''to avoid disruption of financial markets,'' according to documents filed in the US Bankruptcy Court for the Southern District of New York.
Lehman and the New York Fed had requested the advance, known as a ''commencement date advance'' and the New York Fed repaid it, according to filings.
In effect, the New York Fed lent Lehman the funds.
A representative for the New York Fed declined to comment.
''This expansion of the Fed's credit program is unprecedented,'' said David Pauker, a managing director with restructuring adviser Goldin Associates.
''It should provide the liquidity necessary to facilitate the sale of Lehman's core brokerage and banking business.''
That sale appeared closer on Tuesday, as a source said Britain's Barclays had agreed to buy Lehman's core broker-dealer business for about $US2 billion.
Lehman's holding company filed for bankruptcy in the early hours of Monday, in the largest US bankruptcy ever.
Although Lehman's broker-dealer units are not covered under the filing, customers typically unwind trades with a dealer whose holding company is bankrupt.
On Tuesday, at the request of Lehman and the New York Fed, JPMorgan advanced $US51 billion to Lehman as part of a so-called second-day advance.
Court documents did not specify whether the New York Fed would repay the second amount.
JPMorgan may elect to advance additional money to Lehman units as part of a ''post-petition advance.''
All post-petition advances are guaranteed by Lehman and collateralized, according to the documents.
''The Lehman Brothers bankruptcy is taking the restructuring industry into uncharted waters,'' Pauker said.
Reuters
