Foreign Banks Tapped Fed’s Secret Lifeline Most at Crisis Peak

[dkf]

The biggest borrowers from the 97-year-old discount window as the program reached its crisis-era peak were foreign banks, accounting 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. The disclosures may stoke a reexamination of the risks posed to U.S. taxpayers by the central bank’s role in global financial markets.

“The caricature of the Fed is that it was shoveling money to big New York banks and a bunch of foreigners, and that is not conducive to its long-run reputation,” said Vincent Reinhart, the Fed’s director of monetary affairs from 2001 to 2007.

Separate data disclosed in December on temporary emergency- lending programs set up by the Fed also showed big foreign banks as borrowers. Six European banks were among the top 11 companies that sold the most debt overall -- a combined $274.1 billion -- to the Commercial Paper Funding Facility.

http://www.businessweek.com/news/2011-04-01/foreign-banks-tapped-fed-s-secret-lifeline-most-at-crisis-peak.html

[Taitertots]

1. Secret? How is the discount window a secret? Every economist knew about it

Lending to foreign central banks is highly likely to have prevented a much worse economic situation. Any one of those large firms going under would pull down the whole financial system with it.

[FBaggins]

2. The window itself isn't a secret... the secret is who takes advantage of it.

When you get to the "lender of last resort", you don't want that borrowing to become public knowledge because it proves that you have a liquidity crisis and can't get it another way. The run that such knowledge would likely spark does more damage than the original reserves gap.