The role of the central bank of any country is to regulate that country's economy. This means that the central bank also has to supervise the functioning of various banks and bail out those in trouble. But whether it can bail out banks selectively - as has been done by the Federal Reserve, the central bank of the United States, in the case of troubled investment bank Bear Stearns -- is certainly debatable. The Bear Stearns bail out was necessitated by its falling a victim to the US subprime crisis. But the Federal Reserve's action has drawn widespread flak.

There are many who have criticized the bailout of Bear Stearns. They argue that it is similar to a government bailout which the Bush administration has always been against. They question why the Federal Reserve is not bailing out several other banks in a similar situation? US Treasury Secretary Henry Paulson has however, defended the bailout saying that the country faced a serious economic problem and that it was not a difficult decision for the Federal Reserve to bail out Bear Stearns. According to him, it was a right decision at that point of time.

With the subprime crises unfolding in the US, many subprime players have gone bust. Most of the banks that floated subsidiaries and Special Purpose Vehicles (SPVs) to lure the subprime business are still reporting huge losses. Some of these big institutions are HSBC, JP Morgan, UBS, Goldman Sachs and Citigroup. With losses being written down everyday, there were speculations about the bust of a big bank or at least consolidation in the industry.Finally, the big fish came in the form of Bear Stearns which gave way and went belly up. It was only after the timely intervention of the Federal Reserve that it was bought over by JP Morgan Chase in what appeared to be a dramatic rescue effort.

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