Fed Issues Rules to Financial Firms for Lending of Securities

The Federal Reserve Board on Monday outlined policies to be followed by banks and trust companies in lending securities such as stocks and bonds. In issuing the nine-page statement, the Fed noted that financial institutions are lending securities among themselves with increasing frequency and that some inexperienced lenders could get into trouble without guidance.

“Bankruptcies of broker-dealers have heightened regulatory sensitivity to the potential for problems in this area,” the Fed said. “Accordingly, we are providing . . . discussion of guidelines and regulatory concerns.”

The activity covered by the Fed guidelines does not directly involve individuals, although some of the securities involved may be privately owned stocks and bonds that are being held for individual customers by the institution.

The policy statement covers such “commonly recognized safeguards” as keeping daily records of lending activity, reassessing the market value of securities daily, performing credit checks on borrowers and obtaining adequate collateral.