Bear Stearns has had major problems because of the subprime debacle. JPMorgan and the New York Fed said they would provide funding for an initial period of up to 28 days, with the Fed providing funding to JPMorgan through its discount window. The discount window is an instrument of monetary policy used by the Federal Reserve that allows eligible institutions to borrow money from the central bank, usually on a short-term basis, to meet temporary shortages of liquidity caused by internal or external disruptions.
Rumors have it that the Fed's actions from earlier in the week could have been directly aimed towards Bear Stearns because they could have been on the brink of insolvency. The Fed announced that the Term Securities Lending Facility (TSLF) is intended to promote liquidity in the financing markets for Treasury and other collateral and thus foster the functioning of financial markets more generally.
JPMorgan, seeking to allay fears of its own shareholders, said that it did not believe the transaction would put them at risk. The news sent stock markets plunging as the Dow Jones Industrial Average fell 300 points but has since recovered.
Brought to you, courtesy of The Mortgage Market Guide
