Join        Login             Stock Quote

U.S. Fed Tapped For $1.2 Trillion In Secret Loans

 August 23, 2011 09:37 AM

Media groups have forced the Federal Reserve to release data pertaining to secret loans made during the peak of the financial crisis. Documents were requested under the Freedom of Information Act, and some information was made public through the Dodd-Frank Act.

Close to 29,000 pages of documents and 18 spreadsheets revealed that a staggering $1.2 trillion was loaned by the Fed from August 2007 through April 2010. This amount is the total sum loaned out through the various programs instated by the Fed. Many companies borrowed from multiple programs that they were eligible for.

Companies that top the list of borrowers include Morgan Stanley, Citigroup, and Bank of America. European banks also featured heavily on the list. Bloomberg, which revealed the findings, reported that half of the top 30 borrowers by peak balances were European. Royal Bank of Scotland was the largest overseas borrower, receiving $84.5 billion.

[Related -Why it’s time to sell Microsoft]

Foreign governments, banks and industrial companies were also included in the data. Many Middle Eastern and Asian governments and firms show up on the report.

 The news report also mentions that the Fed has not suffered any credit losses on any of the emergency loans it made out under these programs. However, experts question the Fed's decision to lower its standards for collateral. At the height of the crisis, the U.S. central bank started accepting junk bonds and equity as collateral, much different from its usual standard of high credit-rating bonds.

The Fed has been reluctant to reveal the names of companies that received loans. Chairman Ben Bernanke said that making this information public could endanger these companies and would lead to investors perceiving them as distressed. The Fed conceded to a legal challenge by Bloomberg and revealed the data over several months.

[Related -JPMorgan Chase & Co. (NYSE:JPM): A Look At Underlying Growth Drivers]

Morgan Stanley was the largest borrower, with a peak balance of $107.3 billion. The bank suffered an extreme liquidity crisis after hedge funds withdrew close to $128 billion in two weeks, prompting the Fed to provide emergency funds.

Banks tapped into funds from the Fed through different subsidiaries eligible for the program. For example, brokerage divisions of banks were eligible for the Term Securities Lending Facility (TSLF), which allowed them to swap mortgage securities and troubled assets for U.S. Treasury bonds.

This latest report is sure to put the Fed under further fire. It has already been accused of distorting the true position of banks during the crisis through secretive loans that kept investors in the dark. It allowed firms to cover up their weaknesses by not revealing how much funding was actually needed.

State Street Corp., JP Morgan (JPM), and Goldman Sachs (GS) were other American banks that received sizable loans from the Fed. A notable company  featured in the report was Hypo Real Estate Holding A, a German bank  that borrowed $28.7 billion, or $21 million for every one of its 1,366 employees.



Comments Closed

rss feed

Latest Stories

article imageTackling China's Debt Problem: Can Debt-Equity Conversions Help?

China’s high and rising corporate debt problem and how best to address it has received much attention read on...

article imageWill Job Growth Kill The Bear-Market Signal For Stocks?

It’s all about jobs now. Actually, it’s always been about jobs. But the stakes are even higher—perhaps more read on...

article imageAutomating Ourselves To Unemployment

In this current era of central planning, malincentives abound. We raced to frack as fast we could for the read on...

article imageFed: Waiting For June… Or Godot?

The Federal Reserve left interest rates unchanged yesterday, as widely expected. But the possibility of a read on...

Popular Articles

Daily Sector Scan
Partner Center

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.