Posted on 02 Dec 2010
In releasing details on the trillions of dollars' work of loans made during the financial crisis of 200/2009, The Federal Reserve disclosed the breadth of its lending to U.S. businesses desperate to raise cash and the surprising degree to which it supported struggling foreign banks.
The scale of the Fed's lending was widely known. In all it funneled $3.3 trillion worth of credit to different parts of the economy and financial system through an array of different programs during the crisis. But the specifics of who got the money hadn't been known.
Foreign banks received hundreds of billions of dollars in short-term loans from the Fed. Among the biggest loans from a Fed commercial-paper lending program was one to Swiss banking giant UBS AG, which tapped it for $37 billion in October 2008. Barclays PLC, the British bank that declined to rescue Lehman Brothers but later bought much of it from bankruptcy, tapped the Fed for roughly $10 billion in commercial-paper loans in October 2008.
All the borrowings were repaid by the end of 2009, a Barclays spokesman said. A UBS representative said its borrowing was relatively modest, done to give it flexibility during the crisis and was fully repaid.
The Fed's support of foreign banks was rooted in its effort to hold together the crumbling and heavily interconnected financial system. Government officials at the time were concerned the failure of another big financial firm after the collapse of Lehman Brothers would severely damage the global economy.
Dexia AG, a Belgian bank, turned to the Fed for $23 billion in 2008. Commerzbank AG, a German bank, came for $13 billion for commercial-paper loans and turned to another Fed loan facility 25 times for short-term loans of as much as $7.25 billion.
"It is clear foreign institutions were large users of the Fed's facilities, in part as a way to channel dollars to their European home bases," said Robert Eisenbeis, chief monetary economist at Cumberland Advisors.
Also on the list was the banking arm of the Korean government, foreign auto makers and other foreign firms that held U.S. mortgage-backed securities they couldn't sell when financial markets froze.
"After years of stonewalling by the Fed, the American people are finally learning the incredible and jaw-dropping details of the Fed's multitrillion-dollar bailout of Wall Street and corporate America," said Sen. Bernie Sanders, a Vermont independent whose amendment to the Dodd-Frank financial-regulatory bill forced the disclosures. He said the lending to foreign firms was especially striking and demanded "an extensive look."