Colin Barr

Following the money in banking, economics, and Washington

Fed lent to all comers in crisis

March 31, 2011: 5:29 PM ET

Banks weak and strong from all over the world flocked to the Fed's discount window during the financial crisis.

Among two of the biggest emergency borrowers were Germany's Depfa and Belgium's Dexia, with loans totaling $51 billion at the end of October 2008. U.S. banks hit up the window as well, with Washington Mutual borrowing billions in the week before its collapse.

Banks are open

Documents released Thursday show that supposedly healthy banks were leaning heavily on emergency loans during the crisis. Three big banks – two of them among the supposedly healthier players on Wall Street heading into the financial crisis – were the biggest users of various emergency lending programs during a six-month stretch in the fall of 2008 and winter of 2009.

The Fed has long resisted disclosing the details of loans made at its so-called discount window, but it released thousands of pages of documents Thursday after the courts sided with Bloomberg and Fox in lawsuits seeking access to the information.

The Fed's primary dealer tri-party collateral report documents the securities that various banks pledged in exchange for emergency loans, under the Primary Dealer Credit Facility, Term Securities Loan Facility and Fed open market operations. The PDCF and TSLF were created in 2008 to ensure investment banks could keep borrowing from the Fed when debt markets dried up, but loans under those facilities were classified as discount window borrowings.

The borrowings have since been repaid and the Fed didn't lose money on the loans, but anger over the bailout of risk-taking, well-compensated bankers continues to put the Fed's actions under a less than flattering light.

Weekly reports filed between November 2008, two months after the collapse of Lehman Brothers, and January 2009, when Citi (C) and Bank of America (BAC) each received special assistance, show which firms were thirstiest for Fed liquidity at various times. The biggest borrowers include not only Citi but also two healthier banks, Goldman Sachs (GS) and Credit Suisse.

In November 2008, the biggest user of Fed emergency loans was Credit Suisse. It had $62 billion worth of collateral pledged with the Fed as of Nov. 7, 2008, $68 billion worth two weeks later and $63 billion worth at the end of the month. Most of the collateral the firm pledged was in the form of mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac.

By the middle of the next month, the biggest user was Goldman, the Wall Street titan that got $5 billion in assistance from Warren Buffett at the height of the crisis in September and was a big beneficiary of the AIG (AIG) bailout that month. Goldman had pledged $64 billion of securities as of Dec. 19, $81 billion on Dec. 29 and $74 billion in the first week of January.

Goldman also borrowed relatively small sums five times at the conventional discount window between 2008 and 2010 -- apparently contradicting its claims to the contrary, Bloomberg reported.

And soon thereafter, the demands started coming from Citi, the bank that received the most government capital and loan guarantee assistance during the meltdown. It had $59 billion in collateral pledged at the Fed as of Jan. 16, 2009, $58 billion the next week and $57 billion the week after that.

The Fed's outstanding lending under these programs ranged between $200 billion and $400 billion during the period cited. As the financial system stabilized, most banks pulled back from the facilities, and total loans outstanding declined to $96 billion in the first week of April 2009 and $83 billion the week after.

But Citi was still at it, borrowing $44 billion in the week ended April 3 and $36 billion the next week. Every little bit helps.

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About This Author
Colin Barr
Colin Barr
Senior Writer, Fortune

Colin Barr has covered finance for Fortune.com since November 2007. Previously he was a writer and editor for TheStreet.com, winning a 2006 Society of American Business Editors and Writers award for "The Five Dumbest Things on Wall Street," and for Dow Jones Newswires. He is a 1991 graduate of Penn State and lives in Port Washington, N.Y., with his wife Meena Bose and their two kids.

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