On the brink of financial collapse, unknown banks were bailed out by the Federal Reserve discount window. The other day the Supreme Court ruled in favor of a Freedom of Information Act request that the Fed had to expose which financial institutions borrowed from the discount window and how much was loaned. Details unveiled by the Fed Thursday shed light on how Wall Street’s meltdown spread damage around the world.
Fed financial institution bailout
The Fed started the discount window a long time ago. It was meant to be a program with short term loans to help out healthy banks when in some trouble. As a result of stigma in financial circles associated having to stand before the Fed with hat in hand, the identities of the borrowers have always been kept secret. After Bloomberg and Fox Business filed a request under the Freedom of Information Act, the Fed was required to release the details though because of a Supreme Court ruling. When the Fed finally released the data Thurs, any concern about a negative stigma may have been alleviated by the truth that just about every bank in the world had to stand in line at the discount window as the global financial system teetered on the brink of collapse. The discount window was used to lend as much as $110 billion in just one day of a peak day in the financial crisis in accordance with over 25,000 documents.
European financial institutions borrowing more than others
Most were mad at Wall Street financial institutions during the financial crisis. The government bailouts seemed ridiculous. All of the data showed that European banks borrowed probably the most. The Fed report was clear about this. On Oct. 29, 2008, Belgian-French bank Dexia borrowed $26.5 billion and Dublin-based financial institution Depfa, owned by German mortgage lender Hypo Real Estate, borrowed $24.6 billion. The discount window also made multi-billion-dollar loans to other European banks including Austria’s Erste Group, Bank of Scotland and France’s Societe Generale. A weekend loan was taken out by Washington Mutual on Thurs, September 18, 2008 showing just how bad the financial institution failure was in the United States It was a $2 billion loan. When that loan was due Monday, Wamu took a $2 billion overnight loan and kept taking another $2 billion every night until it was taken over by J.P. Morgan Chase on Thursday, Sept. 25, 2008.
Details shows global level of financial crisis
Financial institutions started to beg the Fed to help them out as the financial system froze and economy started to dive downward after the Lehman Brothers collapsed in September 2008. The real damage was found when the discount window details sheets were released. Fed Chairman Ben Bernanke said that only one of the banks that came to the discount window for help was not at risk to collapse in a testimony to congress investigating the discount window. About two years after the loan has been released, the discount window lending information must be released in the future. This was part of the 2010 Dodd-Frank financial reform bill.
Wall Street Journal