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Fed Data Shows B of A and Wells Fargo Biggest Borrowers Under Fed’s Emergency Lending Program, Foreign Banks also Borrowed Huge Amounts

Under court order stemming from a lawsuit by Bloomberg, the Fed has finally released details of its emergency lending starting in 2007.

As Bloomberg notes:

Bank of America Corp. and Wells Fargo & Co. were among the top borrowers from the Term Auction Facility [TAF]…

Bank of America had three loans for $15 billion each outstanding from the facility as of Jan. 15, 2009, while Wells Fargo had three loans for $15 billion each on Feb. 26 …

Citigroup Inc. and JPMorgan Chase & Co. also availed themselves of the TAF. Citigroup’s Citibank NA subsidiary had three loans under the facility totaling $20 billion on Jan. 15, 2009. JPMorgan’s JPMorgan Chase Bank NA had two loans totaling $25 billion on Feb. 26, 2009.

Bloomberg notes that foreign banks borrowed heavily from TAF as well:

Banks with headquarters outside the U.S. were among the first to begin using the facility in December 2007 and were also among its heaviest borrowers. These included the U.S. affiliates of banks such as Manama, Bahrain-based Arab Banking Corp., Madrid-based Banco Santander SA, and Paris-based Societe Generale SA. Beginning on June 18, 2009, Barclays Bank Plc had two loans totaling $23.45 billion outstanding.

Business Insider quotes the Fed to show that many banks tried to avoid the stigma attached to discount window borrowing by using the TAF program:

Many banks were reluctant to borrow at the discount window out of fear that their borrowing would become known and would be erroneously taken as a sign of financial weakness.

***

The PDCF functioned as an overnight loan facility for primary dealers, similar to the way the Federal Reserve’s discount window provides a backup source of funding to depository institutions. By providing a source of liquidity to primary dealers when funding was not available elsewhere in the market,

Business Insider also notes that, “Morgan Stanley, Citi, and Merrill were the biggest users of the PDCF [the Primary Dealer Credit Facility].”

In a separate article, Bloomberg points out that foreign banks were also among the biggest users of the Fed’s emergency commercial paper facility:

The U.S. subsidiaries of European financial institutions, led by Zurich-based UBS AG and Brussels- based Dexia SA were among the largest users of a government program to provide emergency short-term funding to U.S. companies and banks during the credit crisis.

Six European banks were among the top 11 companies that sold the most debt overall to the the Commercial Paper Funding Facility. They sold a combined $274.1 billion, according to data made public today by the U.S. central bank. UBS sold $74.5 billion, the most among all borrowers. The largest U.S.-based user was insurer American International Group, selling $60.2 billion.

UBS’s figure of $74.5 billion represents the company’s total sales over the life of the program. The bank’s CPFF borrowings peaked at $37.2 billion, an amount the firm rolled over, or re-sold at maturity, once. Other companies rolled over debt in the program as well.

Huffington Post is providing an excellent live-blogging round up as new discoveries are made from the Fed’s data release. Here are some of the more interesting insights:

Mutual funds, hedge funds and bond funds borrowed more than $71 billion from the Fed’s Term Asset-Backed Securities Loan Facility, the WSJ reported. This includes $7.1 billion borrowed by the massive bond fund PIMCO, run by veteran investor Bill Gross. Gross’s involvement in the details of the bailout, which included a campaign for public-private partnerships to unwind toxic assets, raised more than few eyebrows from critics.

***

Two European Megabanks Got A Windfall From The Fed … Two European megabanks — Deutsche Bank and Credit Suisse — were the largest beneficiaries of the Fed’s purchase of mortgage-backed securities. The Fed’s dollars also flowed to major American companies that are not financial players, including McDonald’s and Harley-Davidson, through unsecured short-term loans.

***

Wall Street firms teetering on the verge of collapse pledged more than $1.3 trillion in junk-rated securities to the Federal Reserve for cheap overnight loans….

The fact that Wall Street was able to pledge junk to the Fed in exchange for cheap financing is likely to enrage lawmakers who view the Bush and Obama-era crisis programs as largely benefiting Wall Street while “Main Street” has been left behind.

Adding insult to the perceived slight, banks have ramped up their requirements for new loans to borrowers, making it ever more difficult for cash-strapped households and businesses to take out new commitments.

Zero Hedge reports that California pension giant Calpers was the largest user of the TALF program, and that hedge funds and foreign central banks were also big users of the Fed’s emergency programs:

  • Looking at the TALF data, we see that the biggest borrower by subscription is Calpers, with a total of about $5.4 billion
  • More curiously, now disgraced and embroiled in an insider trading scandal hedge fund FrontPoint seems to have been a very active borrower on the TALF facility, having received $4.136 billion on subscription, the bulk of it going to a FrontPoint Michigan Strategic Partnership Investment entity, which has borrowed $2.6 billion
  • Foreign central bank borrowings

    • ECB [European Central Bank] – 271 borrowings for gross rolling total of just over $8 trillion.

    • SNB [Swiss National Bank] – 114 borrowings, for a gross rolling total of $465 billion

    • BOE [Bank of England] – 81 borrowings for a gross rolling total of $918 billion

Karl Denninger argues that the fact that the Fed took stock in two of AIG’s largest foreign insurance subsidiaries violates Section 14 of the Federal Reserve Act, which prohibits the Fed from taking an equity interest in a company irrespective of the means or terms.

Updates as I learn more …

View the original article at Washingtons Blog

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