Wachovia not liquidating funds

Losses at a prominent money market mutual fund caused by the failure of Lehman Brothers sparked extensive withdrawals from a number of similar funds.

These events caused extraordinary turbulence in financial markets: equity prices dropped sharply, the costs of short-term credit spiked upward, and liquidity dried up in many markets.

The losses also reflected, to a lesser extent, declines in the value of commercial real estate mortgages originated and held by Wachovia.

With encouragement from the Federal Reserve, Wachovia raised billion in capital in April 2008 to partially offset those losses.

At the end of the second quarter of 2008, Wachovia had assets of 2 billion, making it the fourth largest banking organization in the United States in asset terms.

Wachovia's principal subsidiary was Wachovia Bank, which had assets of 1 billion.

The Federal Reserve routinely conducts inspections of bank holding companies and their nonbank subsidiaries under authority granted by the Bank Holding Company Act (BHC Act).

In addition, federal law gives the Federal Reserve authority to review merger and expansion proposals by bank holding companies and enforcement authority over bank holding companies and their nonbank subsidiaries, including the ability to stop or prevent a bank holding company or nonbank subsidiary from engaging in an unsafe or unsound practice.

Wachovia had been profitable continuously for more than a decade through year-end 2007.

On September 15, Lehman Brothers had filed for bankruptcy after efforts had failed to organize private-sector assistance or arrange an acquisition by another company.

The failure of Lehman Brothers ended efforts by private investors to provide liquidity to American International Group, Inc.

I will also address the lending and supervisory questions raised in the Commission's invitation letter.