How the Fed propped up Citizens, Sovereign, WebsterDecember 21st, 2010 at 7:00 am by Ted Nesi under General Talk
I’m surprised that no other news outlets have picked up on the story my pal Bill Hamilton wrote for PBN last week revealing how Providence-based Citizens Bank tapped one of the Federal Reserve’s special lending programs 29 times – to the tune of $117 billion – during the credit crunch. Citizens has since paid the money back, but the central bank wasn’t forced to disclose the information until now.
Nor was Citizens alone; Bank of America, Sovereign Bank, Webster Bank and MetLife Bank all used the Fed’s programs too. Here’s some of what Hamilton reported:
The borrowing was not a sign of financial weakness but a chance to take advantage of a less-costly source of liquidity at a time when the credit squeeze was on, a Citizens Financial Group spokesman insisted last week.
“It was an alternative, cheaper source of funding … that we in turn would use to lend,” spokesman Michael Jones told Providence Business News. …
The largest single loan made to RBS through [the Fed's Term Auction Facility program] was for $10 billion on Oct. 23, 2008, at a 1.11 percent interest rate. It was paid back by Nov. 20, 2008.
The largest amount the bank owed to the Fed at any one time was $18.3 billion, at the height of the financial crisis in March 2009, Jones said.
While foreign-owned banks such as Sovereign and Citizens Financial were barred from participating in the Troubled Asset Relief Program, Citizens’ parent, the Royal Bank of Scotland plc, took advantage of the Fed’s loan facilities, according to the central bank’s new disclosures.
That last point is particularly interesting, because it gets at one of the big debates sparked by the Fed’s new disclosures – namely, whether it’s appropriate for the U.S. central bank to be loaning so much money to financial institutions headquartered abroad. (RBS has owned Citizens since 1988.) As Hamilton notes, Congress explicitly barred them from taken part in the infamous TARP program, but the Fed didn’t put similar restrictions in place.
Meanwhile, RBS – which is still 83% owned by the British government after its 2008 bailout – is now hoping to pay cash bonuses to its investment bankers again for the first time since the crisis hit, Bloomberg reports.