FED’S $3 TRILLION IN EMERGENCY AID

Ben Bernanke: Banks and firms used our temporary liquidity facilities 21,000 times during the crisis

EUROPEAN banks were some of the biggest beneficiaries of the Federal Reserve’s $3.3 trillion emergency loan programmes during the darkest days of the financial crisis when the US central bank desperately tried to keep the global system functioning.

The biggest release of data on crisis lending ever revealed by a central bank shows the breadth of the Fed’s support as lender of last resort with 21,000 transactions to financial firms, other central banks and companies between the beginning of December 2007 to the end of July this year unveiled.

Among the transactions, which cover all but one of the Fed’s emergency lending programmes including direct liquidity injections and investments in key credit markets, Barclays Capital emerged as one of the biggest cumulative borrowers from the Primary Dealer Credit Facility (PDCF) providing access to overnight loans. The firm took 50 overnight loans of as much as $7.5bn. After it took over Lehman on 17 September 2008, it borrowed $47.9bn – the highest individual loan in the life of the PDCF. Barclays yesterday said that all the loans were repaid last year. Meanwhile, RBS had to borrow £36.6bn from the Term Auction Facility (TAF) Programme providing access to short-term one and three-month funding emphasising the squeeze in dollar liquidity after the collapse of Lehman.

European banks also featured as five of the ten top users of the Fed’s Commercial Paper Funding Facility (CPFF), which bought high-quality three-month commercial paper from companies that had difficulty selling it with Swiss banking giant UBS tapping it for $37bn in October 2008. Belgium’s Dexia turned to the CPFF for $10.9bn in 2008 and Germany’s Commerzbank for $11.6bn.

Senator Bernie Saunders, who pushed through the amendment to the Dodd-Frank law forcing the disclosure, said yesterday the “huge sum” that went out to foreign private banks and corporations was the “most surprising” element of the published data and demanded “an extensive look.”

The data also revealed how Wall Street titans Goldman Sachs and Morgan Stanley were forced to turn to the Fed for aid – Goldman borrowed directly from the Fed 84 times when its overnight loans peaked at $18bn, while Morgan Stanley tapped it 212 times borrowing nearly $60bn.

Companies such as GE also used the CPFF programme tapping the Fed for more than $12bn in total. And the Fed’s reach also extended to foreign central banks – with the European Central Bank using the Fed’s dollar liquidity swap 271 times in total.