Tags: Fed | banks | borrow | Discount

Fed Names Banks That Tapped Discount Window in 2010

Friday, 28 Sep 2012 12:32 PM

 

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The Federal Reserve on Friday named the banks that borrowed at its discount window during the third quarter of 2010, but the period showed very low levels of activity and none of the biggest Wall Street firms had turned to the facility for help.

Some of the decline in discount window borrowing may have reflected banks steering clear because they knew their actions would be disclosed, albeit with a two-year lag, once the Dodd-Frank financial reform law was passed.

However, Fed officials said it was impossible to know how much this may have been a factor in driving down discount window business, as opposed to what extent the lower level of borrowing just a reflection of market conditions at the time.

The data showed that Gorham Savings Bank of Gorham, Maine, and Commerce Bank of Kansas City, Missouri, took the largest discount window primary credit loans. Gorham's largest loan was $70 million during the period and Commerce's was $60 million.

The data covers a wide range of Fed activities, including discount window borrowing and foreign exchange transactions, from July 22, 2010, which was the day after the passage of Dodd-Frank, until Sept. 30, 2010.

The discount window is a Fed lending facility that banks can access in times of stress and became essential to maintain functioning markets during the 2008 financial crisis.

The Fed document release was the first mandated by the 2010 Dodd-Frank financial reforms, but it also followed previous discount window disclosures forced on it by U.S. courts after several media organizations fought a stiff legal battle.

Those insights had already identified a peak of $111 billion in discount window lending, on Oct. 29, 2008, a month after the collapse of Lehman Bros., which sent markets into free fall, and that some European banks had made extensive use of the facility.

The Fed fought the disclosure of discount window borrowers because it claimed the publicity would make banks more reluctant to use the emergency lending option in a future crisis, potentially weakening the financial system.

The release on Friday showed that of the 732 loans made in the quarter, some 450 were primary credit and 30 were secondary credit, with the rest going to seasonal loans.

Primary credit is for the best quality banks, secondary credit is for firms that don't qualify for primary credit because they are not deemed as being as financially sound. Seasonal credit is aimed at smaller banks who suffer seasonal swings in loans and deposits, such as farm banks.

Fed officials said in some cases, borrowers were simply testing their ability to access the discount window, as evidenced by the number of small loans - over 100 of the loans were for just $1,000.

The Fed data is available at:

http://www.federalreserve.gov/newsevents/reform_quarterly_transaction.htm

© 2014 Thomson/Reuters. All rights reserved.

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