Banks have made a killing off the near-zero interest rate loans provided by the Federal Reserve during the 2008-2009 financial crisis—by taking the money and loaning it back to the U.S. Treasury at rates 12 times higher.

 

At the request of U.S. Senator Bernie Sanders (I-Vermont), the Congressional Research Service examined Fed loans to some of the nation’s largest banks, such as JPMorgan Chase, Citibank and Bank of America, and what the institutions did in turn with their money.

 

By the second quarter of 2009, JPMorgan Chase had taken an average of $7.6 billion in outstanding Fed loans with an interest rate of 0.25% interest. At the same time, it held $34.6 billion in U.S. government securities with an average yield of 2.3%.

 

Similarly, Citigroup during the same time period had more than $23 billion in Fed loans with an interest rate of 0.5%, while holding $24.3 billion in U.S. government securities with an average yield of 2.3%.

 

Fed officials said in 2008 that the emergency loans were needed so banks could provide credit to small- and medium-sized businesses that desperately needed funds to create jobs or to prevent layoffs. “Instead of using this money to reinvest in the productive economy, however, it appears that JPMorgan Chase, Citigroup, and Bank of America used a large portion of these near-zero-interest loans to buy U.S. government securities and earn a higher interest rate at the same time, providing free money to some of the largest financial institutions in this country,” Sanders said.

-Noel Brinkerhoff

 

Backdoor Bailouts (Senator Bernie Sanders)

Bank Borrowing from the Federal Reserve and Purchases of Securities (Congressional Research Service) (pdf)