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Thursday, December 2, 2010

BOFA & Wells Fargo Top Recipients Of Fed's Term Auction Facility Bailout Funds

Bank of America & Wells Fargo (Wachovia) Among Top Users Of Fed's Term Auction Facility Program

Bank of America Corp., Wachovia Corp. and Wells Fargo & Co. were among the top borrowers from the Term Auction Facility, one of the Federal Reserve's first and longest-lasting efforts to combat the financial crisis.

Bank of America had three loans for $15 billion each outstanding from the facility as of Jan. 15, 2009, while Wells Fargo had three loans for $15 Billion each on Feb. 26, 2009, according to documents released Wednesday by the Fed to comply with orders from Congress to identify recipients of emergency aid.

Charlotte-based Wachovia, which agreed to be bought by Wells Fargo at the peak of the financial crisis in fall 2008, was one of the first banks to tap the program in December 2007. It took out its last loan in February 2009. Other N.C. banks that used the program included Winston-Salem-based BB&T Corp. and Raleigh-based RBC Bank.

Fed Chairman Ben Bernanke created the TAF in December 2007 to let banks obtain cheaper funding without risking the stigma of loans from the central bank's discount window. Under the program, banks bid for Fed loans at a rate determined through auctions. Borrowing peaked at $493.1 billion in March 2009 and began declining until the TAF closed in April 2010.

Because the program lent to banks, the Fed didn't invoke an emergency legal clause allowing borrowing by nonbanks in "unusual and exigent circumstances." The central bank used the provision in 2008 to set up loan facilities for investment banks, money-market mutual funds and corporations.

"The funding and guarantee programs were an example of a successful government initiative at no taxpayer expense," said Bob Stickler, a spokesman for Charlotte-based Bank of America. "The programs enabled the U.S. financial system to continue to operate, preventing a recession from becoming much more severe."

Wells Fargo spokeswoman Mary Eshet declined to comment.

In another program, Bank of America and Merrill Lynch & Co. sold $22.9 billion of commercial paper to the Fed in October 2008, days after the two companies received $25 billion in U.S. bailout funds.

The Fed bought $7.96 billion of three-month notes from Merrill on Oct. 27, then purchased $14.9 billion from Bank of America two days later, according to data on the Commercial Paper Funding Facility.

Investor demand for commercial paper, an unsecured short- term loan typically issued to finance inventories and accounts receivable, evaporated in mid-2008 amid concern that the largest U.S. banks might fail.

The purchases add to the tally of bailouts for Bank of America, the biggest U.S. lender by assets, which took a total of $45billion from the Troubled Asset Relief Program. That included an extra $20 billion after losses surged at Merrill Lynch, which it agreed to buy in September 2008.

Bank of America has "repaid, with interest, all of the borrowings except some of those whose terms have not expired," Stickler, the bank spokesman, said.

Data Shows Far-Reaching Fed Bailout

Lifting the veil on its $3 trillion emergency rescue of the financial industry, the Federal Reserve Wednesday revealed the names of U.S. and foreign banks that benefited hugely from nearly a dozen programs to stem panic and keep money moving.

The 21,000 transactions show that the Fed not only stretched the limits of its authority by lending tens of billions of dollars to Goldman Sachs and other giants of Wall Street, but that it also aided British, German and French banks, other big businesses and smaller banks from Puerto Rico to North Carolina and Washington state.

In some instances, the Fed made loans to banks that were in shaky condition, even lending to investment firm Lehman Bros. on the brink of its 2008 bankruptcy.

Defending themselves against mounting Republican criticism over the Fed's contribution to the rising national debt, officials at the central bank said the data proves that they acted responsibly during the crisis. They said most of the loans have been repaid, and taxpayers have suffered no credit losses.

The Fed's actions were taken as large global investment banks were operating outside the direct reach of regulators. Economists have widely praised Fed Chairman Ben Bernanke for saving the global economy with bold, unprecedented actions that saved investment banks and thawed frozen credit markets.

But anger that the Fed helped Wall Street while Main Street struggled fueled a backlash against the Fed, and many newly elected members of Congress campaigned on platforms to rein in the central bank's freedom to act independently.

Some experts said the newly released data probably would give critics new fodder.

Disclosure of all the loans to big banks "could be interpreted as actions to protect the connected, and the Fed has to be nervous about that," said Vincent Reinhart, who directed the Fed's Division of Monetary Affairs from 2001 to 2007."If you want to channel voter anger, there's got to be stuff in that document drop."

The data revealed that the Fed made massive loans to Charlotte-based Bank of America and the firms it acquired, including Wall Street investment bank Merrill Lynch. Investment bank Morgan Stanley, which sustained big losses in the subprime mortgage market, borrowed up to $47.6 billion in late September 2008 under a Fed overnight loan program for major securities dealers, the data showed.

Goldman Sachs, the goliath of Wall Street, faced months of controversy over its receipt of more than $43 billion in federal aid. Wednesday's data showed, however, that Goldman also borrowed up to $24 billion under the program for dealers in fall 2008 and got an additional $7.5 billion from the Fed for its unmarketable securities.

Goldman spokesman Michael DuVally said that, at a time when "many of the U.S. funding markets were clearly broken ... the Federal Reserve took essential steps to fix these markets, and its actions were successful."

Citigroup, beneficiary of a massive Treasury Department bailout, held up to $18.6 billion in loans under the Fed program for primary dealers, while Bank of America's securities division borrowed up to $11 billion. Merrill, acquired late that year by Bank of America, had loans totaling up to $27.5 billion in mid-October 2008.

Bank of America spokesman Bob Stickler called the Fed programs "an example of a successful government initiative at no taxpayer expense."

"The programs helped our customers such as borrowers, auto dealers, depositors and money market fund investors continue to do business as usual despite virtually unprecedented disruptions in the financial markets," Stickler said.

Peak lending under each of the programs combined to total $3.3 trillion, though the Fed said much less was extended at any one time. Still on the Fed's books are more than $1 trillion in securities backed by home mortgages.

The data drop came at the last moment before a congressional deadline for disclosure, adopted as part of a revamp of financial regulation by Congress earlier this year called the Dodd-Frank Act. The Fed, an independent and autonomous agency, successfully skirted attempts to require that it be audited, and the information released did not answer all questions about the Fed's activities.

Independent Sen. Bernie Sanders of Vermont, who succeeded in inserting the transparency requirement in the massive bill, cited Bernanke Wednesday for refusing to open the books.

"Today ... we finally learn the truth - and it is astounding," Sanders said in a statement. "We now know that Fed loaned trillions of dollars at zero or near-zero interest rates not only to the largest financial institutions in this country, but also to many of our largest corporations - including GE, McDonalds and Verizon. Most surprising, the Fed also lent huge sums of money to foreign private banks and corporations."

Reinhart, now a senior researcher with the free market-leaning American Enterprise Institute, said the growing size of the Fed's balance sheet suggested as much.

However, he said, "when you see the number of loans being rolled over day after day (by big Wall Street investment banks), it's pretty striking."

He pointed to Bank of America, which borrowed up to $15 billion under the Term Auction Facility that provided short-term loans at rates lower than what was available in the panicked marketplace.

"Bank of America had lots of really lowly rated securities as its collateral," said Reinhart, who added that the amount of loans being rolled over suggests a subsidy involved to keep Wall Street from fracturing further.

The government also told Bank of America to take $45billion to shore up its balance sheet, which the bank later repaid.

Small banks also were helped under the Term Auction Facility, which doled out $493 billion in one- to three-month loans.

For example, the Cascade Bank of Everett, Wash., borrowed up to $162 million from the program between Valentine's Day 2008 and last January. Lars Johnson, who worked at the bank and is now chief financial officer of the Washington Business Bank in Olympia, Wash., said the loans "helped the banking system in general."

"It took pressure off us, knowing it was there," he said. "You could use it in the shorter term or the longer term."

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Sources: Bloomberg, CNBC, McClatchy Newspapers, Wikipedia, Youtube, Google Maps

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