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Friday, 1 April 2011

Federal Reserve's Discount Window Literally Saved the Global Banking System - Data Shows (Bloomberg)

What links the Arab Bank Corp, Dexia SA, Societe General and the Bank of China?

At first the only similarity would appear to be they are financial institutions, however they all share the misfortune of benefiting from the Federal Reserve discount window lending facility. 

This was put in place to provide emergency overnight funding to banking and financial institutions globally at the height of the financial in 2008. As a result of these institutions been unable to secure financing privately.

The list below provides example of financial institutions that used the Feds discount window.

  1. Dexia SA (Belgium, France) borrowed as much as $33.5bn
  2. Depfa Bank Plc (Dublin) took $24.5bn
  3. Wachovia Corp (Charlotte, NC) $29bn in the week the company almost collapsed
  4. Societe General (France) drew $5bn
  5. Bank of China was the second largest borrower from the Feds discount window in 2007 as the sub-prime mortgage took hold over the global financial system.
  6. Deutsche Bank AG (Germany) borrowed $1bn via two of its divisions
  7. Arab Banking Corp, than 29% owned by the Libyan Central Bank used the discount facility 73 times in an 18 month period following the collapse of Lehman Brothers which totalled $2bn

This data was released under a Freedom of Information Request by Bloomberg LP and contains approximately 29,000 pages of documents covering the Feds discount window and several other of the US Central Banks emergency lending programs established between 2008-2010

Ben Benanke, the Chairman of the US Federal Reserve objected to the release of the data saying that revealing the names of these institutions"might lead market participants to infer weakness".

Bloomberg reporter Bob Ivry discusses the release of the Federal Reserve's discount-window lending records and Goldman Sachs Group Inc.'s borrowing history. He speaks with Matt Miller on Bloomberg Television's "Street Smart."

The Federal Reserve's discount window has been in effect for 97 years, but was used most frequently during the apex of the financial crisis in October 2008. This period represents nearly 70% of the discount windows lending activity and totals $110.7bn in borrowing.

The disclosure of the information and the scale of the borrowing by predominately foreign financial institutions will provoke a possible re-examination of the role of the Federal Reserve within the Global Financial System, particularly the risks poised to the US taxpayer.


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