Fed Reserve gave $9 trillion emergency loans to US banks

WASHINGTON - The Federal Reserve, America’s central bank, made $9 trillion in overnight loans to major banks and Wall Street firms during the financial crisis, according to newly revealed data.

The loans were made through a special loan programme set up by the Fed in the wake of the Bear Stearns collapse in March 2008 to keep the nation’s bond markets trading normally, according to data released Wednesday.

The amount of cash being pumped out to the financial giants was not previously disclosed. All the loans were backed by collateral and all were paid back with a very low interest rate to the Fed-an annual rate of between 0.5 percent to 3.5 percent.

Senator Bernie Sanders, who had authored the provision of the financial reform law that required Wednesday’s disclosure, called the data that was released incredible and jaw-dropping.

“The $700 billion Wall Street bailout turned out to be pocket change compared to trillions and trillions of dollars in near zero interest loans and other financial arrangements that the Federal Reserve doled out to every major financial institution,” Sanders was quoted as saying by CNNmoney.

The Wall Street firm that received the most assistance was Merrill Lynch, which received $2.1 trillion, spread across

226 loans. The firm did not survive the crisis as an independent company, and was purchased by Bank of America just as Lehman Brothers was failing.

Citigroup, which ended up with a majority of its shares owned by the Treasury Department due to a separate federal bailout, was No. 2 on the list with 279 loans totalling $2 trillion. Morgan Stanley was third with $1.9 trillion coming from 212 loans.

The largest single loan was by Barclays Capital, which borrowed $47.9 billion on Sept. 18, 2008, in the days after the Lehman bankruptcy. The loan financed Barclays’ purchase of Lehman’s remaining assets.

Not all the major banks needed much help from the Fed. JPMorgan Chase received only three loans from this programme for a total of $3 billion.

The Federal Reserve revealed details of more than 21,000 transactions with major banks and Wall Street firms between December 2007 and July 2010 as part of a large scale release of data on all the steps it took to stabilize the nation’s

financial sector during the markets crisis of the last few years.

(Arun Kumar can be contacted at arun.kumar@ians.in)