Fed Chairman Ben Bernanke spent the weekend crafting a safety net for the global financial system.

Susan Walsh / The Associated Press

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WASHINGTON — The Federal Reserve announced several steps late Sunday to cope with the worst credit crisis in decades, including broadening the types of assets that investment banks can put up to get emergency loans from the Fed.

The action came as U.S. and foreign commercial banks were hashing out a plan to inoculate the global financial system against the possible failure of Lehman Brothers Holdings Inc.

Federal Reserve Chairman Ben Bernanke announced the actions in a statement, saying they were being taken after a weekend of discussions with officials from the Treasury Department and the Securities and Exchange Commission, and top executives of financial firms.

Those talks were aimed at seeing whether another financial institution would be willing to take over venerable investment bank Lehman Brothers, and failing that, how other institutions could pool resources to protect the global financial system.

Bernanke said the discussions had been aimed at identifying "potential market vulnerabilities in the wake of an unwinding of a major financial institution and to consider appropriate official-sector and private-sector responses."

"The steps we are announcing today, along with significant commitments from the private sector, are intended to mitigate the potential risks and disruptions to markets," Bernanke said.

Besides expanding the types of collateral that can be used, Bernanke said the Fed also would increase the frequency of some of the auctions being used to get loans to banks from every other week to a weekly basis.

In a separate statement, Treasury Secretary Henry Paulson said he supported the Fed's moves and said the actions taken should "strengthen and enhance our financial markets. These initiatives will be critical to facilitating liquid, smooth functioning markets and addressing potential concerns in the credit markets."

Paulson, who was involved in three days of talks at the New York Federal Reserve Bank, said he appreciated the efforts by other financial firms involved in the discussions to promote "orderliness and stability in our financial markets as we work through this extraordinary environment."

Christopher Cox, the chairman of the Securities and Exchange Commission, said in a statement that the SEC was working to make sure that the customers of Lehman's broker-dealer operations "will not be adversely affected by recent market events." Cox also was involved in the weekend talks that failed to find a buyer for Lehman Brothers.

The Fed's steps represented the latest in a series of actions the central bank has taken over the past year to protect the U.S. financial system from a credit crisis that erupted as a result of rising loses in subprime mortgage lending.

Other developments

● Late Sunday, a group of global banks and securities firms in New York announced a $70 billion loan program that financial companies can tap to help ease a credit shortage that threatens global financial markets.

The 10 banks, which include JPMorgan Chase & Co. and Goldman Sachs Group Inc., said they were committing $7 billion each for the pool.

The pool would act as a signal to the marketplace that banks, brokerages and other financial companies can lean on the fund to take care of borrowing needs.

The banks said the program will be available to participating banks that can get a cash infusion up to a maximum of one-third of the total size of the pool. The size of the loan program might increase as "other banks are permitted to join."

All participating banks intend to use this facility beginning this week, the statement said.

The banks also include Bank of America Corp., Barclays PLC, Citigroup Inc., Credit Suisse Group, Deutsche Bank AG, Merrill Lynch & Co., Morgan Stanley and UBS.

The banks made the announcement to try to head off market disruptions after the possible failure of Lehman Brothers. Lehman announced early today that it will file for bankruptcy after succumbing to dwindling investor confidence due to losses from its real estate holdings.

● Merrill Lynch, another investment bank laid low by the crisis that was triggered by rising mortgage defaults and plunging home values in the U.S., was in talks to be acquired by Bank of America, a marriage apparently brokered by the federal government.

Charlotte, N.C.-based Bank of America has the most deposits of any U.S. bank, while Merrill Lynch is world's largest brokerage. A combination of the two would create a global financial giant to rival Citigroup Inc., the biggest U.S. bank in terms of assets.

The deal would not come without risks, however. Merrill Lynch, like many of its Wall Street peers, has been struggling with tight credit markets and billions of dollars in assets tied to mortgages that have plunged in value. Merrill has reported four straight quarterly losses.

And Bank of America's own finances are far from robust. As consumer credit deteriorates, the bank has seen its profits decline, and the company is still in the midst of absorbing embattled mortgage lender Countrywide Financial, which it acquired in January.

● A forced restructuring of the world's largest insurance company, American International Group Inc., also weighed heavily on global markets as the ripple effects of the year-old credit crisis seemed to intensify.

New York Insurance Superintendent Eric Dinallo and a representative of the Governor's Office spent the weekend at the headquarters of AIG, which has been hit hard by deterioration in the credit markets, working to craft a solution that protects policyholders, said David Neustadt, Dinallo's spokesman.