The Fed's fight to stop contagion

The Federal Reserve aimed to stop financial contagion spreading

Details about the US Federal Reserve's decision to offer emergency loans to Wall Street banks earlier this year have been published.

In March, the US central bank decided to help rescue Bear Stearns, which was on the brink of collapse, and offered emergency loans to other banks.

Minutes of the Fed's meeting showed it was scrambling to prevent a 'contagion' infecting the US financial system.

The loan was seen as the boldest action from the Fed since the 1930s.

The actions came at a time when the credit crisis, sparked by a collapse of the US sub-prime mortgage market, had deepened.

The problem had spread to global financial markets and threatened to plunge the world's biggest economy into recession.

On 14 March, the Fed approved special funding to allow JP Morgan to buy its smaller rival Bear Stearns which faced bankruptcy without financial help.

'Prevent serious harm'

The central bank also extended its emergency lending to other institutions on Wall Street.

"This action was necessary to prevent, correct or mitigate serious harm to the economy or financial stability," the minutes said.

The minutes revealed just how worried the central bank's members were about the risk of turmoil at one bank spreading across the entire sector.

The takeover of Bear Stearns by JP Morgan, and the Fed's own lifeline, were 'necessary to avoid serious disruptions to the financial markets', the minutes revealed.

Earlier this month, JPMorgan closed its acquisition of Bear Stearns, bringing to an end an 85-year-old institution.