Fed ID’s companies that used crisis aid programs
WASHINGTON (AP) – The Federal Reserve revealed details Wednesday of trillions in emergency aid it gave to U.S. and foreign banks and to nonbank companies ranging from General Electric to Harley-Davidson during the financial crisis.
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), Bear Stearns ($960 billion), Bank of America ($887 billion), Goldman Sachs ($615 billion), JPMorgan Chase ($178 billion) and Wells Fargo ($154 billion).
Merrill Lynch was later acquired by Bank of America, while Bear Stearns collapsed and was sold to JPMorgan.
Foreign banks that benefited from the Fed’s aid included Swiss bank UBS, which borrowed more than $165 billion, Deutsche Bank ($97 billion) and the Royal Bank of Scotland ($92 billion).
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.
Many of the individual loans the banks took were worth billions and had short durations but were paid back and renewed many times.
Among the largest recipients were foreign central banks, such as the European Central Bank, Bank of England and the Bank of Japan. They borrowed huge amounts of dollars from the Fed to assist their own banks.
Large non-banking companies in the U.S. used the Fed’s lending programs to pay employees or suppliers or to make loans through their subsidiaries. They did so because private financing had all but evaporated. Over time, GE borrowed a total of more than $16 billion, Harley-Davidson $2.3 billion and a group of independent Caterpillar dealers $733 million.
Two other recipients were the California State Teachers Retirement System and the City of Bristol (Conn.) General City Retirement Fund.
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 meltdown 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 system basically failed because banks stopped lending to each other,” said Paul Miller, a banking analyst at FBR Capital Markets. “The Fed essentially opened the floodgates and pushed as much liquidity into the system as possible. And it worked. It helped stabilize the system.”
The emergency credit 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 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.
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 high-risk 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.