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Fed Opens Curtain On $3.3 Trillion Of Crisis Lending

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The Federal Reserve on Wednesday released details on $3.3 trillion (2.11 trillion pounds) in emergency loans made during the financial meltdown that showed Citigroup and Bank of America leaning on overnight loans from the central bank well into the spring of 2009.

The findings, published in accordance with a deadline set by a wide-ranging rewrite of U.S. financial rules enacted in July, shed light on who benefited most from the central bank's controversial efforts to support financial institutions and credit markets.

The results could reignite debate about whether some bailouts, such as the support for insurer AIG, were appropriate, although financial markets largely ignored the report.

"It will serve to remind folks that we were in a bad place and the Fed stepped in to help, but might also reopen some old political wounds," said John Cannally, economist at LPL Financial Boston. "It's interesting historical background but the market has largely moved on."

As the financial crisis that began in the summer of 2007 spread beyond the housing sector to the nation's biggest banks, the Fed, under the leadership of Chairman Ben Bernanke, devised increasingly complex facilities to help restore confidence.

Among these were loans to broker-dealers made outside the Fed's usual discount lending window for troubled institutions, which is reserved for deposit-taking commercial banks.


The Fed made more than 1300 loans under the Primary Dealer Credit Facility, or PDCF, set up for broker-dealers, with the largest -- $47.9 billion -- going to London-based Barclays, the Fed's data showed. The facility marked the first time since the Great Depression that the Fed had lent to non-depository institutions.

Many banks tapped the facility after it was launched in the wake of investment bank Bear Stearns' collapse in March 2008 but borrowing dried up by late summer.

However, after Lehman Brothers filed for bankruptcy in September 2008, the Fed faced a crush of demand as financial markets froze and banks scrambled for cash.

Borrowing from the PDCF peaked that month at $156 billion, but Citigroup kept borrowing into late April 2009, while Bank of America took out its last loan in May 2009.

Luckily it's all contained now.

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So Barclays, whom the Fed hoped and believed would buy Lehmans, actually needed nearly 50 billion bailout from the Fed?

The question has to be as to why Barclays went to the Fed and not the UK Govt?

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The disclosures reveal the extent that corporations relied on the Fed for the money to make payroll and pay their suppliers. The crisis in the market for commercial paper, the lifeblood of daily business, was more extensive and lasted longer than was previously known.

Even bedrock corporations like Caterpillar, General Electric, Harley Davidson, McDonald’s, Verizon and Toyota relied on a Fed program that supported the market for commercial paper — the short-term i.o.u.’s that corporations rely upon to make payroll and pay their suppliers. During the worst moments of the crisis, in the fall of 2008, even creditworthy corporate borrowers found this source of financing had dried up, and had to turn to the Fed for help.

While most of the Fed’s commercial paper purchase were made in the first few weeks after the program opened on Oct. 27, 2008, the central bank had to buy nearly as much in January 2009 and only slightly less in March 2009. Indeed, the Fed was still supporting the market for commercial paper well into the summer of 2009 — even as the recession officially came to an end.

In total, the documents released Wednesday on the Fed’s Web site offer insight into the more than 21,000 emergency loans and $3 trillion in liquidity that the Fed provided to investment banks, foreign central banks and a number of other institutions. The bulk of the money went out in 2008 during the peak of the crisis

Those efforts were in addition to the central bank’s use of monetary policy to expand the supply of credit to the economy and lower interest rates. The Fed lowered its benchmark short-term interest rate, the federal funds rate at which banks borrow from each other overnight, to essentially zero in December 2008. And from that month until March 2009, the Fed purchased some $1.7 trillion in mortgage-related assets and Treasury securities to lower long-term interest rates. On Nov. 3, the Fed announced a resumption of its bond-buying strategy, known as quantitative easing, with plans to purchase $600 billion in Treasury securities through June 2011.

It would appear that after Lehman's the entire financial system effectively ground to a halt and the only thing keeping the entire system from imploding was the FED buying up paper, was it simply printing it?

It's also slightly worrying that the FED was also supporting central banks!!!! I mean why would a central bank need short term IOU's from the FED? Was the globe desperately short of dollars at this point?

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The disclosures came because the Dodd-Frank Wall Street Reform Act forced the Fed to reveal which banks and companies it lent money to in an effort to shore up the financial system from the end of December 2007 onwards.

It released the details of more than 21,000 individual transactions on its website on Wednesday, which showed that British banks represented more than a third - about $1.5 trillion - of the $3,300bn lent by the US authorities to prop up the financial sector.

Barclays borrowed $863bn from the Fed, with almost half coming in overnight loans through the Primary Dealer Credit Facility, a programme established by the central bank to help those banks that deal in US Treasuries.

So what % of outstanding debt was this for our banks?

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On Thursday 2 December 2010, 10:07
) - Royal Bank of Scotland (LSE: RBS.L - news) said on Thursday that it had repaid money borrowed from the United States Federal Reserve and it no longer used any Fed schemes.
"RBS no longer makes use of any Federal Reserve schemes," the part-nationalised bank said.

I think we should admire their transparency in this. Solid upright fellows the lot of them. Hrrmph, hack hackapf.

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