Fed's new role questioned by analysts

WASHINGTON, March 28 (UPI) -- Federal Reserve economic rescue strategies broke new ground in March and set expectations of an expanded role for the U.S. central bank, analysts said.

By backing assets of troubled investment bank Bear Stearns and opening lending to investment firms, the Fed expanded on its defined mission of serving as back up for traditional banks, The Washington Post reported Friday.

"This will redefine the Fed's role," said Wall Street historian Charles Geisst. "They've recreated the financial universe."

Stepping in to help investment banks might encourage more risk-taking in that financial sector, the report said.

The 11th hour deal to help Bear Stearns "wrought changes far more significant than they were probably thinking about at the time," Vincent Reinhart, a former senior Fed staff member, told the newspaper.

But the move reflects financial realities. A decade ago, commercial banks held 50 percent of the country's credit-market assets. They now hold about 33 percent, the report said.

On Wednesday, Treasury Secretary Henry Paulson called for holding investment banks and others up to the same regulatory processes the Fed imposes on traditional banks.

"The world has changed, as has the role of non-bank financial institutions," he said.