The Fed's Emergency Powers Are Not New

Washington Post reporters by Binyamin Appelbaum and Neil Irwin have a very strange article about the Fed's emergency powers. Well, I guess it's not so much strange as it is completely wrong. They write:

On the day before Thanksgiving in 1991, the U.S. Senate voted to vastly expand the emergency powers of the Federal Reserve.

Almost no one noticed.

The critical language was contained in a single, somewhat inscrutable sentence, and the only public explanation was offered during a final debate that began with a reminder that senators had airplanes to catch. Yet, in removing a long-standing prohibition on loans that supported financial speculation, the provision effectively allowed the Fed for the first time to lend money to Wall Street during a crisis.

That authority, which sat unused for more than 16 years, now provides the legal basis for the Fed's unprecedented efforts to rescue the financial system.

This is just plain wrong. The provision in question is the now-infamous Section 13(3) of the Federal Reserve Act, which authorizes the Fed to lend to non-depository institutions (e.g., investment banks, insurers) in "unusual and exigent circumstances." Section 13(3) was enacted in 1932, and the Fed has had this emergency authority ever since.

The 1991 law that Appelbaum and Irwin claim "vastly expand[ed] the emergency powers of the Federal Reserve" was the Federal Deposit Insurance Corporation Improvement Act (FDICIA). But the FDICIA only made one relatively minor, technical change to the Fed's emergency authority, having to do with the "kinds and maturities" of loans the Fed can extend to non-depository institutions in emergencies. The FDICIA didn't address whether the Fed has the authority to "lend money to Wall Street during a crisis," because the Fed already had that authority.

I know virtually nothing about how major newspapers operate, but I honestly don't understand how an article like this can get past the paper's editors.