The Federal Reserve extended more than $1 trillion to the globe's largest financial firms during 2008's financial crisis, according to new analysis from Bloomberg News.
The $1.2 trillion that Federal Reserve Chairman Ben Bernanke pumped into companies to keep financial markets functioning is roughly equivalent to the amount American homeowners owe on delinquent or foreclosed mortgages, according to Bloomberg.
The new analysis is based on data released by the Fed following Freedom of Information Act requests and a lawsuit filed by Bloomberg, The central bank had been reluctant to release the data, arguing that making its lending public would damage the reputation of the firms doing the borrowing.
The information makes clear the outsized role the Fed played in the rush to avert a financial catastrophe in the final months of 2008. The Treasury Department's Troubled Asset Relief Program (TARP) has come to symbolize the government's bailout efforts, but the $160 billion the nation's largest banks received from the Treasury is a fraction of the Fed's outreach.
The high point of $1.2 trillion, which came on Dec. 5, 2008, also dwarfs the central bank's previous high point for crisis lending. The Fed loaned out $46 billion on Sept. 12, 2001, after the terrorist attacks against the World Trade Center and the Pentagon.
Morgan Stanley got the biggest piece of the pie, borrowing up to $107.3 billion of public money. Citigroup and Bank of America both tapped the Fed for nearly $100 billion around the same time.
However, the Fed's did not just extend an open hand to American companies. Roughly half of the top borrowers from the Fed were based in Europe, such as Paris's Societe Generale SA and UBS AG, which is based in Zurich. The Royal Bank of Scotland borrowed $84.5 billion, the largest amount of any foreign bank.
The story asserts that banks would tout the ironclad stability of their finances, while secretly borrowing huge amounts from the Fed. For example, on the same September day Morgan Stanley touted its "strong capital and liquidity positions" in a press release, it also hit the $107.3 billion peak in Fed borrowing.
However, the Fed, which typically demanded collateral for the loans in the form of bonds, said it has had no credit losses on the emergency lending. A February report by the Federal Reserve Bank of New York indicated it actually made $13 billion in interest and fees on the efforts between August 2007 and December 2009.