Three years after Bloomberg and Fox News (News Corp., owner of the Wall Street Journal) sued the Fed to reveal under the Freedom of Information Act the banks who lined up at the Fed’s discount window to borrow money after the Lehman collapse in 2008, the Supreme Court finally ordered them to comply. The Fed was concerned that if such knowledge were revealed, the public’s confidence in those institutions would wane. Which is another way of saying that the Fed withheld vital information from the market.
Here are the first reports on the data.
The discount window was the first tool Fed Chairman Ben S. Bernanke reached for when panic over subprime mortgage defaults caused banks to tighten lending in money markets in 2007. The Fed cut the discount rate it charged banks for direct loans to 5.75 percent on Aug. 17, 2007, and it continued to reduce the rate to 0.5 percent by the end of 2008. The rate stands at 0.75 percent today.
Lending through the discount window soared to a peak of $111 billion on Oct. 29, 2008, as credit markets nearly froze in the wake of the bankruptcy on Sept. 15, 2008, of Lehman Brothers Holdings Inc. While the loans provided banks with backstop cash, the public has never known which banks borrowed or why. Fed officials say all the loans made through the program during the crisis have been repaid with interest.
The first significant commercial-bank failure during the financial crisis, IndyMac Bancorp borrowed $500 million from the Fed’s discount window on July 11, 2008—the day that it went under. The California bank, ninth largest mortgage lender in the U.S. at the time, wasn’t a heavy borrower early in the week before its demise, but received three overnight loans from July 8-10, the largest of which was $450 million.
U.S. Bancorp had the largest borrowing from the Fed’s discount window in the tumultuous week after federal regulators seized control of mortgage giants Fannie Mae and Freddie Mac. The consumer-heavy bank took an overnight loan of $3.4 billion on Sept 10, 2008, three days after the government unveiled a plan to rescue the mortgage titans. USB didn’t have any other borrowings during the week of Sept 4-10, 2008. Overall, the largest volume of loans that week were granted to banks in the Fed’s California district.
Goldman Sachs Group Inc. didn’t avail itself much of direct access to the Federal Reserve discount lending window in the days and weeks after it converted to a bank holding company during the 2008 financial crisis. It went to it on Sept. 23, 2008, for a $50 million overnight loan, the data showed. It had won bank-holding-company status just two days earlier. In the weeks that followed it only visited two other times, tapping overnight loans of $2.5 million and $5 million in October.
Right before it failed in 2008, Washington Mutual was a heavy Fed borrower at the discount window, the data show. The first time WaMu appears to have tapped the window that September was Thursday, Sept. 18, 2008, a week before it collapsed, taking $2 billion to carry it through the weekend. The Monday after, when that first loan was due, it turned to taking $2 billion overnight each night. It even took $2 billion on Thursday. Sept. 25, as J.P. Morgan Chase & Co. took it over late that day in the biggest bank failure in history.
The Northeast regional bank took an overnight loan of $685 million on Sept. 10, 2008, the second-largest borrowing that week. Sovereign was sold to Banco Santander SA a month later.
The Austrian bank was the biggest single borrower the week of Sept. 15, 2008. Erste Group went to the Fed three times on Sept. 15 and 17, borrowing a total of $5.4 billion.
Bank of Scotland
The Lloyds Banking Group took out $5 billion overnight on Sept. 17, the second biggest borrower after Erste Group during the week Lehman collapsed.
After getting approval to become a bank holding company, Morgan Stanley visited the window the first day it could, taking a $1 million overnight loan on Sept. 22.