Fed bails out the world's banks
In order for healthy banks to get a little bit of short term help in loans, the Fed crated the discount window. As a result of 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. Almost every bank in the world needed help because the global financial system was about to fall down completely, the fear of a stigma disappeared. 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 crisis peaked.
European banks borrowing more than others
Through the financial turmoil, Wall Street banks got lots of criticism for taking government bailout funds. However details released by the Fed revealed that European financial institutions were among the biggest borrowers at the discount window. About $26.5 billion was borrowed by Belgian-French bank Dexia while $24.6 billion was borrowed by Dublin-based financial institution Depfa that German mortgage lender Hypo Real Estate owns on Oct. 29, 2008. Other European banks such as Bank of Scotland, France’s Societe Generale and Austria’s Erste Group all borrowed billions in the discount window also. A weekend loan was taken out by Washington Mutual on Thurs, September 18, 2008 showing just how bad the bank failure was in the U.S. It was a $2 billion loan. Until Wamu was taken over by J.P. Morgan Chase on Thursday, September 25, 2008, it kept getting the $2 billion loan overnight as it could not be paid back.
Turmoil in financial industry not just in United States
When the collapse of Lehman Brothers in September 2008 triggered the financial turmoil, the global economy went into a tailspin, the financial system froze and banks all over the world begged the Fed for help. Having all the discount window data information out there to see has shown the world just how bad the turmoil was. The way it spread was also found. During testimony to a congressional panel investigating the financial turmoil in November 2009, Fed chairman Ben Bernanke said of all the financial institutions lined up at the discount window, only one was not at risk of total collapse. The Dodd-Frank financial reform bill passed in 2010 removes secrecy from discount window lending, but not until two years have passed from the time the loans are made -- about the same period it took the courts to force the Fed to do it this time.
Articles cited
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
Article resource - Release of discount window data reveals big European bank bailout by MoneyBlogNewz.
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