Saturday, April 02, 2011
No wonder the Federal Reserve fought so hard to keep secret the names of banks that were bailed out during the height of the financial crisis of 2008. The biggest recipients were foreign—not American—institutions that benefited from hundreds of billions of taxpayer dollars that were loaned out. And one of them was a bank owned by the Central Bank of Libya.
After losing repeatedly in court, the Fed finally released documents sought by Bloomberg that revealed who borrowed what through the central bank’s discount window during a critical period of several months for the U.S. economy. The discount window allows financial institutions to borrow money from the Federal Reserve at discount rates on a short-term basis to cover liquidity shortages.
The single largest borrower from the Fed program was Dexia, a French-Belgian bank that frequently held more than $30 billion in outstanding loans. Depfa Bank Plc of Germany received $24.5 billion, and $26 billion was loaned to the Arab Banking Corporation, whose majority (59%) owner is the Central Bank of Libya.
According to Sen. Bernie Sanders (I-Vermont), because the Libyan-owned bank is headquartered in Bahrain, it is escaping the economic sanctions against the regime of Libyan dictator Muammar al-Gaddafi. Federal Reserve Chairman Ben Bernanke justified aid to the Libyan-owned bank on the basis that it has a branch in the United States (on Third Avenue in New York City).
During the crisis’ busiest week, 70% of the $111 billion borrowed through the discount window went to overseas banks.
“The American people are going to be outraged when they understand what has been going on,” Representative Ron Paul (R-Texas) told Bloomberg. “What in the world are we doing thinking we can pass out tens of billions of dollars to banks that are overseas?”
He added: “We have problems here at home with people not being able to pay their mortgages, and they’re losing their homes.”
Only one U.S. bank, Wachovia Corp., was among the top five discount-window borrowers, taking $29 billion. It is now owned by Wells Fargo.
Records turned over by the Fed also revealed that it allowed banks to use $118 billion in junk bonds, defaulted debt and unrated securities and stocks as collateral in order to borrow billions in cash.
-Noel Brinkerhoff
Letter to Ben Bernanke (Senator Bernie Sanders) (pdf)
Foreign Banks Used Fed Secret Lifeline Most at Crisis Peak (By Bradley Keoun and Craig Torres, Bloomberg)
Fed Let Brokers Turn Junk to Cash at Height of Financial Crisis (by Matthew Leising, Bloomberg)
The Fed’s Crisis Lending: A Billion Here, a Thousand There (by Binyamin Appelbaum and Jo Craven McGinty, New York Times)
Fed Kept Taps Open for Banks in Crisis (by Liz Moyer and David Benoit, Wall Street Journal)
Supreme Court: Federal Reserve Must Disclose Wall Street Lending Details (by Noel Brinkerhoff, AllGov)
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