Despite the strong arguments against the rescue of some banks that had taken bad loans on their balance sheet, it seems that the Fed has gone some way in this direction. This week, the Fed has agreed to bend key banking regulations, making some exceptions in favour of Bank of America and Citigroup. The Fed has agreed to exempt both banks from rules that limit the amount of lending that these institutions can do to their brokerage affiliates. The purpose of these exceptions is to provide temporary funding to some of their subsidiary holding mortgage loans, mortgage back securities and similar assets. These same two banks recently made use of the discount window in order to alleviate some liquidity stress. Both facts might be linked together and reflect the way the Fed wants liquidity to extend quickly and smoothly to those parts of the banking sector most needed. However, these exemptions might create moral hazard issues in subsequent times. Banks might believe that further exemptions will be offered in the future and that Central Banks will always bail out them no matter how stupidly they behave.