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The Federal Reserve supervised Wachovia in a manner similar to other very large bank holding companies.
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).
During the first half of 2008, Wachovia posted losses totaling .6 billion, reflecting write-downs on securities and high provisions for loan losses.
The Federal Reserve also establishes consolidated capital, liquidity, risk management, and other prudential requirements for bank holding companies.
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.
On August 19, 2008, the Federal Reserve Bank of Richmond entered into a Memorandum of Understanding (MOU) with Wachovia.
This MOU was the culmination of efforts by the Federal Reserve that had been initiated earlier through our inspection process to ensure that Wachovia completed a number of steps to improve corporate governance, risk management, liquidity, capital management, and strategic planning.