The Federal Reserve on Wednesday released details on $3.3 trillion in emergency loans made during the 2007-2009 financial meltdown, including who borrowed how much and what collateral they put up.
The findings, published in accordance with a deadline set by a wide-ranging rewrite of U.S. financial rules enacted in July, could shed light on who benefited most from the central bank's controversial efforts to support financial institutions and credit markets.
The results could reignite debate about whether some bailouts, such as the support for insurer AIG (NYSE: AIG), were appropriate.
As the financial crisis that began in the summer of 2007 spread beyond the housing sector to the nation's biggest banks, the Fed, under the leadership of Chairman Ben Bernanke, devised increasingly complex facilities to help restore confidence.
Among these were loans to broker-dealers made outside the Fed's usual discount lending window for troubled institutions, which is reserved for deposit-taking commercial banks.
Investors are curious to see how much money the likes of Goldman Sachs (NYSE: GS), Morgan Stanley (MS.N) and Merrill Lynch, now part of Bank of America (NYSE: BAC), took from the central bank.
"I suspect a lot of institutions might have had their hand out," said Kim Rupert, a managing director at Action Economics in San Francisco. "I expect we'll see some fairly significant borrowings from some of the major financial institutions. It will be interesting to see what foreign institutions were very active."
The Fed made more than 1300 loans under the Primary Dealer Credit Facility set up for broker-dealers, with the largest -- $47.9 billion -- going to London-based Barclays, the Fed's data showed. The facility marked the first time since the Great Depression that the Fed had lent to non-depository institutions.
Other key emergency lending measures included an attempt to revive commercial paper markets with funding from the Fed, as well as a program aimed at securitization markets that also tapped central bank money as an incentive for new deals.
Most of the loans have been fully repaid, although analysts say the Fed is still exposed to market risk both through its purchases of long-term assets, which will mount to $2.3 trillion once its latest round of bond buying wraps up in June, and its loans to failed financial giants Bear Stearns and AIG.
"The Federal Reserve followed sound risk-management practices in administering all of these programs, incurred no credit losses on programs that have been wound down, and expects to incur no credit losses on the few remaining programs," the central bank said in a statement.
Critics, some even inside the central bank, cite a less tangible potential cost: the Fed's credibility and independence.
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Arguably, the Fed's most contentious and politically costly decision was the rescue of insurance giant American International Group. Criticism of the Fed grew after it emerged that AIG executives were paying themselves multimillion dollar bonuses.
The Fed-sponsored purchase by JPMorgan of troubled investment firm Bear Stearns in March 2008 also drew heavy scrutiny.
That bailout temporarily quelled market fears about contagion, though Lehman Brothers' failure in September of that year touched off the most virulent phase of the crisis.
Questions linger as to why the Fed and U.S. Treasury decided to let Lehman go after they had acted to save Bear Stearns. The Fed has argued it could not extend a loan to Lehman because the firm was insolvent.
Through it all, the Fed was criticized for being too close to the banking sector, while not doing enough to support the broader economy. In recent months the financial sector has recovered smartly but that rebound has failed to translate into a vigorous economic expansion.
The controversy led to efforts by Congress, eventually thwarted, to curtail the central bank's regulatory authority and regularly audit its emergency lending. The one-time disclosure emerged as a compromise.
Some analysts worry that despite the broad nature of the data being released, it would be disclosed in such a way as to make it difficult to make immediate sense of the information.
"My sense is they're going to give us the disclosure in the same grotty fashion (as before)," said Christopher Whalen, managing director at Institutional Risk Analytics, a bank research firm. "It's not going to be well organized so you'll have to sort through it."www.ibtimes.com
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