Where Did the Fed Foreign Lending Story Go?

Last Friday, in what one would think would be a bombshell story headlined "Foreign Banks Tapped Fed’s Secret Lifeline Most at Crisis Peak," Bloomberg's Bradley Keoun and Craig Torres reported that foreign banks secretly and routinely tapping the Federal Reserve's "discount window" lending program, primarily in 2008 and 2009. Some specifics:

  • "(The) loans protected a lender to local governments in Belgium, a Japanese fishing-cooperative financier and a company part-owned by the Central Bank of Libya."
  • Dexia SA (DEXB), based in Brussels and Paris, borrowed as much as $33.5 billion through its New York branch ..."
  • "Dublin-based Depfa Bank Plc, taken over in 2007 by a German real-estate lender later seized by the German government, drew $24.5 billion."
  • "...foreign banks ... (accounted) for at least 70 percent of the $110.7 billion borrowed during the week in October 2008 when use of the program surged to a record."

Fed Chairman Ben Bernanke fought for two years to keep the information secret after Bloomberg filed a Freedom of Information Act request in 2009. The Bloomberg report quotes Bernanke as claiming in April 2009 that disclosure "might lead market participants to infer weakness."

In the Bloomberg report, Congressman Ron Paul is quoted making a prediction that has sadly been way off the mark:

“The American people are going to be outraged when they understand what has been going on,” U.S. Representative Ron Paul, a Texas Republican who is chairman of the House subcommittee that oversees the Fed, said in a Bloomberg Television interview.

Well, Congressman, the American people aren't "outraged," because the American people don't "understand what has been going on." The reason they don't understand what has been going on is that the rest of the establishment press in the U.S. has been relatively uninterested in reporting the facts, let alone the legality of a nation's sovereign bank opening up its discount window to the rest of the world.

A "past week" Yahoo News search on [Bernanke "foreign banks"] (input exactly as indicated between brackets, sorted by time, returns 28 items (it looks like 61 at first, but it's really only 28). Considering the gravity of the story, that's barely a ripple, even given the 2-1/2 years which have since passed.

A March 31 Associated Press report by Jeannine Aversa and Derek Kravitz on the Fed's document release and its related "there's nothing here you could possibly be interested in" headline ("Fed names banks that drew loans during crisis") should probably serve as a model for journalism students assigned to cover a story but to reveal as little as possible while doing so.

The pair's write-up didn't mention the existence of foreign bank borrowings until its seventh paragraph, and gave no hint of the existence of anything other than domestic loans until that point. Of the six specific dollar amounts they identified, only one was associated with foreign banking entities. Aversa and Kravitz mentioned the existence of loans to an Arab bank in which the central bank of Libya has a large stake, but "somehow" forgot to tell readers that what was involved, according to Zero Hedge quoting Vermont Sen. Bernie Sanders, was "more than $26 billion in credit."

Here are the first eight paragraphs illustrating Kravitz's and Aversa's aversion to the core story:

For the first time in its 98-year history, the Federal Reserve on Thursday identified banks that borrowed from its oldest lending program.


The Fed was compelled to name the banks that drew emergency loans during the financial crisis after the Supreme Court rejected a bid by major banks to keep that information secret. It's the latest sign of how the Fed is becoming more transparent - either by choice or by force.


The central bank lent up to $110 billion through its emergency "discount window" at the height of the crisis. After Lehman Brothers collapsed in September 2008, banks turned to the Fed as a lender of last resort because their credit had frozen up. The Fed argued then that naming those banks could have stirred a panic, leading to a run on those banks and defeating the program's purpose.


The documents released Thursday showed that a range of large and small institutions borrowed from the program from August 2007 through March 2010.


Most of the lending took place in the two-month stretch between September and October 2008. The specific program that the banks drew from has been redacted from the documents, but the data points to most of the loans being through the "discount window." In many cases, those loans were paid back the following day.


Some of the biggest loans were drawn by the nation's largest banks. For example, U.S. Bank took out an overnight loan of $3.35 billion on Sept. 10, Wachovia borrowed $29 billion on Oct. 6, and Morgan Stanley drew more than $3 billion on Oct. 9.


But foreign banks also relied heavily on the emergency lending program. On one day in late October, Dexia, a Belgian-based European bank, and Depfa, a German subsidiary headquartered in Dublin, each drew about $25 billion in overnight loans. That represented about half of the money that was borrowed by 44 banks that day.


The documents also show that the Arab Banking Corporation took out loans from the discount window during the financial crisis. The central bank of Libya owns a large stake in that bank, according to the bank's web site.

It would not be out of line to suggest the possibility that the AP pair and the wire service iteself hoped that there would be little interest in the story on the part of subscribing outlets if they kept foreign banks out of the report's headline and deferred mentioning them as long as possible in its content. It would appear that they largely got their wish.

A March 31 New York Times story appearing on Page B1 of the April 1 print edition (i.e., not on the front page) revealed much of the truth which the AP overlooked:

Perhaps the most surprising revelation in Thursday’s documents was that foreign banks quickly became the largest and most frequent borrowers. On Sept. 15, 2008, the day that Lehman Brothers filed for bankruptcy, the Austrian bank Erste Group borrowed $4 billion. By the end of that week banks from Spain, France and Japan had also borrowed billions.


An analysis of discount window lending from February 2008 to February 2009 shows that the vast majority of the loan volume went to foreign institutions.

No one seems to be asking what one might think would be a couple of pretty central questions:

  1. Is the foreign lending, which the Fed may never have engaged in until 2007 (and certainly never at the level then undertaken), legal or constitutional?
  2. Was Ben Bernanke telling the truth when his answer at a 2009 Congressional hearing concerning which European financial institutions received money was "I don't know"? His ultimate answer was that he knew 14 central banks got money, but that he didn't know the names of specific banks which got money from those central banks, which is hardly satisfying.

It would seem that the vast majority of the establishment press isn't interested in finding answers to these questions. They should be.

Cross-posted at BizzyBlog.com.

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