Banking giants leaned heavily on Fed in crisis

Flags fly outside 85 Broad St., the Goldman Sachs headquarters in New York's financial district, January 20, 2010. REUTERS/Brendan McDermid

Flags fly outside 85 Broad St., the Goldman Sachs headquarters in New York's financial district, January 20, 2010.
Credit: Reuters/Brendan McDermid

By Pedro da Costa and Rachelle Younglai
WASHINGTON | Thu Dec 2, 2010 7:26am GMT
WASHINGTON (Reuters) - Goldman Sachs, Citigroup and other big U.S. banks repeatedly sought help from the Federal Reserve during the financial crisis, according to data on Wednesday that showed just how precarious their situation was at the time.

Many of the firms now boasting solid profits had to rely on funding from the U.S. central bank, which essentially acted as the glue holding the financial system together in the tumultuous months that followed the bankruptcy of Lehman Brothers in September 2008.

Citigroup, Morgan Stanley (MS.N) and Merrill Lynch, now part of Bank of America, were the three biggest recipients of the Fed's key emergency lending programs, according to a Reuters analysis of Fed data. Goldman Sachs was sixth on the list, contradicting claims from its top executives that the firm always had plenty of cash on hand.

"It appears the investment banks clearly needed the money," said Lawrence Glazer, managing director at Mayflower Advisors in Boston.
The Fed's disclosure of details of its $3.3 trillion in emergency lending, mandated by the Dodd-Frank financial reform bill enacted in July, showed Citigroup and Bank of America (BAC.N) leaning heavily on the U.S. central bank well into the spring of 2009.

It also indicated foreign financial institutions were big beneficiaries of the Fed's largess.
The U.S. central bank had fought efforts to pull back the veil on its secretive lending, and in the end Congress decided to demand only details of emergency programs, not past loans to commercial banks from the Fed's regular discount window.

Details on the Fed's loans of commercial paper -- short-term lending used to fund day-to-day business operations -- revealed a motley cast of characters: borrowers ranged from Korea and the German state of Bavaria to Verizon Communications (VZ.N) and Harley Davidson (HOG.N).

The results could reignite debate about whether some bailouts, such as the support for insurer AIG (AIG.N) and foreign banks, were appropriate. Still, U.S. stocks, which rallied on Wednesday on U.S. jobs and manufacturing data, greeted the release with a shrug.

"It will serve to remind folks that we were in a bad place and the Fed stepped in to help, but might also reopen some old political wounds," said John Cannally, economist at LPL Financial Boston. "It's interesting historical background but the market has largely moved on."
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.

The Fed made more than 1,300 loans under the Primary Dealer Credit Facility, or PDCF, set up for broker-dealers, with the largest -- $47.9 billion -- going to London-based Barclays (BARC.L), the Fed's data showed. The facility marked the first time since the Great Depression that the Fed had lent to non-depository institutions.
Many banks tapped the facility after it was launched in the wake of investment bank Bear Stearns' collapse in March 2008 but borrowing dried up by late