Federal Reserve Chairman Ben S. Bernanke said the central bank would use the discount window or its emergency lending powers to expand liquidity if dollar funding is needed in a potential European financial crisis.
The Fed would “use our authority through the discount window or through our 13.3 authority to lend to financial institutions against collateral to make sure that lack of liquidity was not a reason that they would collapse or at least stop lending,” Bernanke said, citing a section of the Federal Reserve Act permitting emergency credit.
“That’s the main tool we obviously have in reserve that we could use and we will use if financial conditions called for it,” he said. Given the Fed’s experience combating financial stress in 2008, the central bank is “certainly going to try to do what is necessary,” the Bernanke said.
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