Federal Reserve Gave Big Banks Enormous Secret Loans at Ridiculous Rates
Sunday, May 29, 2011
During the financial crisis of 2008, the Federal Reserve made short-term loans worth at least $100 billion to banks without bothering to tell shareholders or Congress. Rep. Barney Frank (D-Massachusetts), who co-authored the 2010 financial regulation law known as the Dodd-Frank Wall Street Reform and Consumer Protection Act, said last week, “I wasn’t aware of this program until now,”
Some of the largest recipients of the Fed’s ST OMO (single-tranche open-market operations) were Credit Suisse Group AG, Goldman Sachs and Royal Bank of Scotland. It is difficult to know how much they took because records of the program released to the media only included graphs without accompanying exact figures. Bloomberg News, studying these graphs, estimated that Credit Suisse borrowed up to $45 billion, and Goldman Sachs and Royal Bank of Scotland up to $30 billion each, while Deutsche Bank, Barclays and UBS each took at least $15 billion.
The Federal Reserve released the records on March 31, but only after the U.S. Supreme Court ordered them to, following a Freedom of Information Act request by Bloomberg and Fox News Network,
ST OMO made 28-day loans from March through December 2008, with interest rates as low as .01% at a time when the Federal Reserve, through its discount window, was lending at 0.50%.
Robert Eisenbeis, former head of research at the Fed’s Bank of Atlanta, called the program “a pure subsidy.”
He added that people shouldn’t be surprised that lawmakers were not informed about the dirty-cheap loans. “The Fed hasn’t been forthcoming with disclosures overall. Why should this be any different?”
-David Wallechinsky, Noel Brinkerhoff
Fed Gave Banks Crisis Gains on $80 Billion Secretive Loans as Low as 0.01% (by Bob Ivry, Bloomberg)
Domestic Open Market Operations During 2008 (Federal Reserve Bank of New York) (pdf)
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