Minutes reveal Fed decisions at time of Bear Stearns crisis

The Federal Reserve has lifted the veil on the emergency meetings and extraordinary decisions that surrounded the collapse of Bear Stearns in March, when bankers feared its bankruptcy would spread like a contagion through the financial system.

The minutes of two hastily convened Fed meetings were released yesterday, showing that at the first – after Bear had privately confessed that it was having trouble meeting its trading obligations – only four members of the Federal Open Markets Committee (FOMC) could be brought together in time.

The four nonetheless agreed to extend financing to JPMorgan Chase, Bear Stearns' closest trading partner, to help it prop up the ailing investment bank through Friday 14 March. The minutes also show for the first time that the Fed was ready to extend financing to any securities firm that found itself in difficulty if Bear could not pay them.

"Members agreed that, given the fragile conditions of the fin-ancial markets at the time, the prominent position of Bear Stearns in those markets, and the expected contagion that would result from its immediate failure, the best alternative available was to provide temporary emergency financing to Bear Stearns," the minutes say.

It was only on Sunday 16 March that a five-member FOMC meeting formally agreed that financing would be available to all securities firms until September, reactivating a Depression-era provision aimed at stabilising the financial system. In normal times, the Fed only lends directly to commercial banks. That 3.45pm meeting came after Fed officials had helped broker a full takeover of Bear Stearns, which was announced before trading resumed for the new week in Asia.