Wednesday 24 January 2018

Secret US liquidity of $11.5bn loaned to our banks

AIB and BoI availed of funds for two years as share prices fell

Emmet Oliver

AIB and Bank of Ireland availed of $11.5bn (€8bn) in secret US liquidity during 2009 and 2010 as both banks' share prices tumbled and concern grew over their property exposures.

Data provided by the US Federal Reserve to Bloomberg shows AIB at peak was borrowing $9.4bn (€6.5bn) of liquidity, with BoI availing of $2.1bn (€1.4bn).

The Federal Reserve, which is America's central bank, is only releasing the names of the lenders and the amounts following a Freedom of Information request from Bloomberg.

AIB was a Federal Reserve borrower for a total of 387 days, while Bank of Ireland borrowed for 295 days. The average daily balance taken by Bank of Ireland was $500m, with AIB on a daily balance of $1.8bn.

Both banks borrowed in 2009 and 2010 and it is not clear whether the banks ended the liquidity support themselves or after intervention by the Fed.

The information supplied to Bloomberg shows the Fed provided a total of $1.2trn to banks from around the world. It also provided some support to industrial companies. Morgan Stanley, Citi and Bank of America were the largest recipients of the money.

The largest borrower, Morgan Stanley, got as much as $107.3bn, while Citigroup took $99.5bn and Bank of America $91.4bn.

It wasn't just American finance. Almost half of the Fed's top 30 borrowers, measured by peak balances, were European firms. Apart from AIB and Bank of Ireland, no other Irish bank, including Anglo, appears to have received assistance.

"These are all whopping numbers," said Robert Litan, a former US Justice Department official. "You're talking about the aristocracy of American finance going down the tubes without the federal money."

Royal Bank of Scotland took $84.5bn, the most of any non-US lender, and Swiss lender UBS got $77.2bn.

Germany's Hypo Real Estate borrowed $28.7bn, an average of $21m for each of its 1,366 employees.


The $1.2trn peak on December 5, 2008 -- the combined outstanding balance under the seven programmes tallied by Bloomberg -- was almost three times the size of the US federal budget deficit that year and more than the total earnings of all federally insured banks in the US for the decade through 2010.

The Fed has said it had "no credit losses" on any of the emergency programmes, and a report by Federal Reserve Bank of New York staffers in February said the central bank netted $13bn in interest and fee income from the programmes from August 2007 through December 2009.

"We designed our broad-based emergency programmes to both effectively stem the crisis and minimise the financial risks to the US taxpayer," said James Clouse, deputy director of the Fed's division of monetary affairs in Washington.

Regulators are "not going to go far enough to prevent this from happening again," said Kenneth Rogoff, a former chief economist at the IMF.

Irish Independent

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