Morning Must Reads: Banks Profit From Secret Loans

After a lengthy battle failed to prevent publication, Bloomberg Markets Magazine has released an analysis of data obtained from the Federal Reserve on previously undisclosed loans the Fed made to banks during the financial crisis. As of March 2009, the Fed provided $7.7 trillion in loans and guarantees to troubled banks, according to Bloomberg, which also reported that the bank bailout lasted from August 2007 to April 2010.  By comparison the Troubled Asset Relief Program (TARP) of the U.S. Treasury was just $700 billion.

Banks worldwide earned an estimated $13 billion by taking advantage of below-market rates on emergency U.S. Federal Reserve loans from August 2007 through April 2010.

The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. Now, the rest of the world can see what it was missing.

The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets Magazine reports in its January issue.

Below are the Bloomberg estimates of the money some Central Pennsylvania banks made from these loans:

  • Fulton Financial: $1.6 million
  • M&T Bank: $17.1 million
  • PNC Financial Services: $29.1 million
  • Susquehanna Bankshares: $16.9 million

It would have been a mistake not to rescue the banking system, but the failure to disclose the extent of the banking bailout in timely fashion made it harder to implement the reform necessary to better handle future financial crises. 

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