To forestall going belly-up throughout the financial turmoil, anonymous financial institutions lined up at the Federal Reserve’s discount window for cheap loans. Thanks to a Freedom of Information Act request enforced by the Supreme Court the other day, data showing the true extent of discount window lending has been released. The true danger of Wall Street’s financial meltdown to the world was made evident by the discount window data. Resource for this article – Release of discount window data reveals big European bank bailout by MoneyBlogNewz.
Fed bails out the world’s banks
In order for healthy banks to get just a little bit of short term help in loans, the Fed crated the discount window. Due to the stigma in financial circles associated having to stand before the Fed with hat in hand, the identities of the borrowers have always been kept secret. After Bloomberg and Fox Business filed a request under the Freedom of Information Act, the Fed was required to release the data though due to a Supreme Court ruling. When the Fed finally released the data Thursday, any concern about a negative stigma may have been alleviated by the fact that just about every bank in the world had to stand in line at the discount window as the global financial system teetered on the brink of collapse. More than 25,000 pages of documents show the Fed lent as much as $110 billion through the discount window in one day as the financial turmoil peaked.
Financial Institutions in Europe borrowing a ton
In the course of the financial turmoil, Wall Street banks got a lot of criticism for taking government bailout funds. The discount window financial institutions were mostly European banks though, the details showed. On Oct. 29, 2008, Belgian-French bank Dexia borrowed $26.5 billion and Dublin-based bank Depfa, owned by German mortgage lender Hypo Real Estate, borrowed $24.6 billion. There were other European financial institutions to get billions from the discount window. These integrated France's Societe Generale, Austria's Erste Group and Bank of Scotland. On this side of the pond, before it became the biggest bank failure in history, Washington Mutual borrowed $2 billion on Thursday, Sept. 18, 2008, to get through the weekend. The $2 billion loan could not be paid by Wamu Monday when it was due leaving the financial institution to keep getting $2 billion overnight loans. This was until Thursday, September 25, 2008 when J.P. Morgan Chase took over.
United States not the only ones with a financial crisis taking place
September 2008, the Lehman Brothers failed causing the financial crisis to begin. The financial system literally stopped while the economy dived downward and the Fed got banks all over the world asking for just a little short term help. The discharge of the discount window data shows just how bad the damage was and just how quickly it spread. Fed Chairman Ben Bernanke said that only one of the financial institutions that came to the discount window for help was not at risk to collapse in a testimony to congress investigating the discount window. In the 2010 Dodd-Frank financial reform bill, it is required for the discount window lending information to be released but only two years after the loan has been released.
Information from
Fox Business
foxbusiness.com/industries/2011/03/31/demystifying-feds-secretive-discount-window/
Wall Street Journal
online.wsj.com/article/SB10001424052748703712504576234700412932330.html
Reuters
reuters.com/article/2011/03/31/usa-fed-lending-idUSN3126104220110331?pageNumber=2
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