The discount window provided by the Federal Reserve attracted a hoard of financial institutions heretofore unidentified as the financial system melted down. A Freedom of Information Act request for the data had kicked around the courts until last week. The Supreme Court ruled the public has a right to know which financial institutions obtained loans from the discount window and how much they borrowed. The true danger of Wall Street’s financial meltdown to the world was made evident by the discount window details. Source for this article – Release of discount window data reveals big European bank bailout by MoneyBlogNewz.
Financial institution bailout by Fed
The Fed started the discount window a long time ago. It was meant to be a program with short term loans to help out healthy banks when in some trouble. The identities of the banks borrowing have been kept a secret in the past because of the stigma that comes in financial circles when a bank needs help from the Fed. After Bloomberg and Fox Business filed a request under the Freedom of Information Act, the Fed was required to release the details though due to a Supreme Court ruling. When the Fed finally released the data Thurs, any concern about a negative stigma may have been alleviated by the belief that just about every financial institution in the world had to stand in line at the discount window as the global financial system teetered on the brink of collapse. The discount window was used to lend as much as $110 billion in just one day of a peak day in the financial crisis in accordance with over 25,000 documents.
Most borrowing happened in European financial institutions
Wall Street banks have taken much of the flak for government bailouts throughout the financial turmoil. All of the data showed that European financial institutions borrowed the most. The Fed report was clear about this. There were two banks that borrowed money on Oct. 29, 2008. They included the $24.6 billion borrowed by German mortgage lender hypo Real Estate owned financial institution Dexia which is a Belgian-French financial institution and $26.5 billion was borrowed by Depfa in Dublin. 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. 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. Until Wamu was taken over by J.P. Morgan Chase on Thursday, September 25, 2008, it kept applying for the $2 billion loan overnight as it could not be paid back! .
Whole world faces financial crisis
Financial institutions started to beg the Fed to help them out as the financial system froze and economy started to dive downward after the Lehman Brothers collapsed in September 2008. The real damage was found when the discount window data sheets were released. 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 last year 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
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