Fed docs reveal scope of companies' use of emergency aid programs during financial crisis
JEANNINE AVERSA
AP News
AP News
Dec 01, 2010 17:02 EST
The Federal Reserve revealed details Wednesday of trillions of dollars in emergency aid it provided to U.S. and foreign banks during the financial crisis.
Merrill Lynch was later acquired by Bank of America, while Bear Stearns collapsed and was sold to JPMorgan.
Among the largest foreign bank recipients were Bank of England, Swiss National Bank, Barclays and Bank of Japan.
The documents are a reminder of how crippled the financial system had become during the crisis and how much it's recovered since. Banks earned $14 billion from July through September this year.
The Fed released the data in the form of more than 21,000 transactions. The disclosures are required under the financial overhaul law. The Fed's programs were credited with helping restore the health of individual banks and stabilize the financial system.
The documents disclosed details of more than $3.3 trillion in loans to financial institutions, companies and foreign central banks during the crisis. The figure comes from adding up the maximum amount of aid provided for each of the Fed's credit programs.
The Fed detailed more than $2 trillion it lent through eight programs from December 2007 to July this year to ease a credit crisis. It came at a time when the financial crisis had caused credit to virtually dry up, sidelining companies and municipalities in need of short-term cash. The credit clog worsened the deepest recession since the Great Depression.
The lending programs had never been used before and are now defunct. Most of the loans have been repaid, and none are overdue, Fed officials say.
The Fed also detailed the $1.25 trillion in mortgage securities it bought from Fannie Mae and Freddie Mac to help drive down mortgage rates, ease credit and provide some support to the crippled housing market.
In addition, the Fed disclosed details of "swap" arrangements with foreign central banks. These occurred when the Fed traded much-in-demand dollars for foreign currencies to try to ease credit. The foreign central banks, in turn, lent the dollars to banks in their countries that needed dollar funding. The Bank of Canada, the Bank of England, the European Central Bank, the Swiss National Bank and the Bank of Japan were involved in the exchanges.
One of the emergency lending programs the Fed created provided low-cost, short-term loans to banks. Another sought to ease credit problems in the "commercial paper" market, which many U.S. companies use to finance everything from salaries to supplies.
Another was designed to spark low-cost lending to consumers and small businesses. Investors used the Fed's loans to buy securities backed by auto loans, credit cards and other debt.
Big U.S. and foreign banks made repeated use of the programs. Bank of America, for instance, took out 14 loans worth $15 billion each under the Fed program that provided short-term loans. The loans were repaid after either one month or three months. The last was repaid by July 2009.
Barclays, a British bank, tapped the same facility 49 times. Its individual loans ranged from $300 million to $15 billion. Citigroup used the program 26 times.
The documents help illustrate the global scope of the crisis. The Federal Reserve provided credit lines to some of the largest central banks overseas: The European Central Bank took $8 trillion in temporary credit lines, while the Bank of England took $918 billion. That credit ensured that overseas markets wouldn't freeze for a lack of U.S. dollars, the global reserve currency.
"There's very much a sense from the data that the Federal Reserve was not just providing liquidity to U.S. banks but was creating stability for the entire world's financial system," said Linus Wilson, assistant professor of finance at the University of Louisiana, who has studied the financial crisis.
International banks also lined up to take advantage of the Fed's lending. Swiss bank UBS borrowed $74 billion, and French bank BNP Paribas borrowed $41 billion. The Royal Bank of Scotland borrowed $38 billion.
"The American people are finally learning the incredible and jaw-dropping details of the Fed's multi-trillion dollar bailout of Wall Street and corporate America," said Sen. Bernie Sanders, an independent from Vermont, who pushed Congress to direct the Fed to make the disclosures. "Perhaps most surprising is the huge sum that went to bail out foreign private banks and corporations."
Large non-banking companies in the U.S. used the Fed's lending programs, too, the documents show. They did so to meet immediate payments such as payroll or payments to suppliers, because private financing had all but evaporated. Motorcycle maker Harley-Davidson Inc. borrowed $2.3 billion, Caterpillar Inc. $733 million and McDonald's $203 million.
Two other recipients were the California State Teachers Retirement System and the City of Bristol (Conn.) General City Retirement Fund.
But the emergency aid that was extended to banks and Wall Street rankled many ordinary Americans who weren't getting any help in their struggles with high unemployment, rising foreclosures and sagging home values. And many expressed anger toward banks and Wall Street for lax lending and for taking risky gambles that contributed to the crisis.
Much of the information the Fed is disclosing is similar to what would be required under a court case that a group of commercial banks is appealing to the Supreme Court
The Fed didn't take part in that appeal. What the court case could require — but the Fed isn't providing Wednesday — are the names of commercial banks that got low-cost emergency loans from the Fed's "discount window" during the crisis.
The Fed has long acted as a lender of last resort, offering commercial banks loans through its discount window when they couldn't obtain financing elsewhere. The Fed has kept secret the identities of such borrowers. It's expressed fear that naming such a bank could cause a run on it, defeating the purpose of the program.
The Fed didn't oppose releasing the information being disclosed Wednesday.
But the new financial overhaul law will require the Fed in late 2012 to provide information on any commercial banks that are drawing emergency loans from its discount window now. That doesn't include banks that drew loans from the discount window during the 2007-2009 financial crisis.
___
AP Business Writers Pallavi Gogoi in New York and Christopher S. Rugaber and Paul Wiseman in Washington contributed to this report.
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New documents show that the most loan and other aid for U.S. institutions over time went to Citigroup ($2.2 trillion), followed by Merrill Lynch ($2.1 trillion), Morgan Stanley ($2 trillion), Bank of America ($1.1 trillion), Bear Stearns ($960 billion), Goldman Sachs ($620 billion), JPMorgan Chase ($260 billion) and Wells Fargo ($150 billion). Many of the individual loans they took were worth billions and had short durations but were paid back and renewed many times.Merrill Lynch was later acquired by Bank of America, while Bear Stearns collapsed and was sold to JPMorgan.
Among the largest foreign bank recipients were Bank of England, Swiss National Bank, Barclays and Bank of Japan.
The documents are a reminder of how crippled the financial system had become during the crisis and how much it's recovered since. Banks earned $14 billion from July through September this year.
The Fed released the data in the form of more than 21,000 transactions. The disclosures are required under the financial overhaul law. The Fed's programs were credited with helping restore the health of individual banks and stabilize the financial system.
The documents disclosed details of more than $3.3 trillion in loans to financial institutions, companies and foreign central banks during the crisis. The figure comes from adding up the maximum amount of aid provided for each of the Fed's credit programs.
The Fed detailed more than $2 trillion it lent through eight programs from December 2007 to July this year to ease a credit crisis. It came at a time when the financial crisis had caused credit to virtually dry up, sidelining companies and municipalities in need of short-term cash. The credit clog worsened the deepest recession since the Great Depression.
The lending programs had never been used before and are now defunct. Most of the loans have been repaid, and none are overdue, Fed officials say.
The Fed also detailed the $1.25 trillion in mortgage securities it bought from Fannie Mae and Freddie Mac to help drive down mortgage rates, ease credit and provide some support to the crippled housing market.
In addition, the Fed disclosed details of "swap" arrangements with foreign central banks. These occurred when the Fed traded much-in-demand dollars for foreign currencies to try to ease credit. The foreign central banks, in turn, lent the dollars to banks in their countries that needed dollar funding. The Bank of Canada, the Bank of England, the European Central Bank, the Swiss National Bank and the Bank of Japan were involved in the exchanges.
One of the emergency lending programs the Fed created provided low-cost, short-term loans to banks. Another sought to ease credit problems in the "commercial paper" market, which many U.S. companies use to finance everything from salaries to supplies.
Another was designed to spark low-cost lending to consumers and small businesses. Investors used the Fed's loans to buy securities backed by auto loans, credit cards and other debt.
Big U.S. and foreign banks made repeated use of the programs. Bank of America, for instance, took out 14 loans worth $15 billion each under the Fed program that provided short-term loans. The loans were repaid after either one month or three months. The last was repaid by July 2009.
Barclays, a British bank, tapped the same facility 49 times. Its individual loans ranged from $300 million to $15 billion. Citigroup used the program 26 times.
The documents help illustrate the global scope of the crisis. The Federal Reserve provided credit lines to some of the largest central banks overseas: The European Central Bank took $8 trillion in temporary credit lines, while the Bank of England took $918 billion. That credit ensured that overseas markets wouldn't freeze for a lack of U.S. dollars, the global reserve currency.
"There's very much a sense from the data that the Federal Reserve was not just providing liquidity to U.S. banks but was creating stability for the entire world's financial system," said Linus Wilson, assistant professor of finance at the University of Louisiana, who has studied the financial crisis.
International banks also lined up to take advantage of the Fed's lending. Swiss bank UBS borrowed $74 billion, and French bank BNP Paribas borrowed $41 billion. The Royal Bank of Scotland borrowed $38 billion.
"The American people are finally learning the incredible and jaw-dropping details of the Fed's multi-trillion dollar bailout of Wall Street and corporate America," said Sen. Bernie Sanders, an independent from Vermont, who pushed Congress to direct the Fed to make the disclosures. "Perhaps most surprising is the huge sum that went to bail out foreign private banks and corporations."
Large non-banking companies in the U.S. used the Fed's lending programs, too, the documents show. They did so to meet immediate payments such as payroll or payments to suppliers, because private financing had all but evaporated. Motorcycle maker Harley-Davidson Inc. borrowed $2.3 billion, Caterpillar Inc. $733 million and McDonald's $203 million.
Two other recipients were the California State Teachers Retirement System and the City of Bristol (Conn.) General City Retirement Fund.
But the emergency aid that was extended to banks and Wall Street rankled many ordinary Americans who weren't getting any help in their struggles with high unemployment, rising foreclosures and sagging home values. And many expressed anger toward banks and Wall Street for lax lending and for taking risky gambles that contributed to the crisis.
Much of the information the Fed is disclosing is similar to what would be required under a court case that a group of commercial banks is appealing to the Supreme Court
The Fed didn't take part in that appeal. What the court case could require — but the Fed isn't providing Wednesday — are the names of commercial banks that got low-cost emergency loans from the Fed's "discount window" during the crisis.
The Fed has long acted as a lender of last resort, offering commercial banks loans through its discount window when they couldn't obtain financing elsewhere. The Fed has kept secret the identities of such borrowers. It's expressed fear that naming such a bank could cause a run on it, defeating the purpose of the program.
The Fed didn't oppose releasing the information being disclosed Wednesday.
But the new financial overhaul law will require the Fed in late 2012 to provide information on any commercial banks that are drawing emergency loans from its discount window now. That doesn't include banks that drew loans from the discount window during the 2007-2009 financial crisis.
___
AP Business Writers Pallavi Gogoi in New York and Christopher S. Rugaber and Paul Wiseman in Washington contributed to this report.
Source: AP News
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