The Federal Reserve, under orders from Congress, plans today to identify recipients of $3.3 trillion in emergency aid the central bank provided as it fought the worst financial crisis since the Great Depression.
The Fed intends to post the data on its website at midday in Washington to comply with a provision in July’s Dodd-Frank law overhauling financial regulation. The information spans six loan programs as well as currency swaps with other central banks, purchases of mortgage-backed securities and the rescues of Bear Stearns Cos. and American International Group Inc.
The disclosures may heighten political scrutiny of the central bank already at its most intense in three decades. The Fed’s Nov. 3 decision to add $600 billion of monetary stimulus has met with backlash from top Republicans in Congress, who said in a Nov. 17 letter to Chairman Ben S. Bernanke that the action risks inflation and asset-price bubbles.
“It is quite conceivable it is going to stir up the political pot,” said Ward McCarthy, chief financial economist at Jefferies & Co. Inc. in New York. “But political criticism isn’t going to prevent them from doing what they need to do. An important part of being a Fed official is to understand whatever you do is going to come under scrutiny.”
The data will probably show the magnitude of central bank support to companies including Bank of America Corp. and General Electric Co. after the collapse of Lehman Brothers Holdings Inc. spurred a surge in private borrowing costs. Lawmakers demanded disclosure after the Fed approved aid dwarfing the federal government’s $700 billion Troubled Asset Relief Program.
Congress excluded one Fed program from disclosure, the discount window, which is the subject of a 2008 lawsuit filed by Bloomberg LP, parent of Bloomberg News, against the central bank. A group of banks is appealing to the Supreme Court over lower-court decisions ordering the Fed to identify loan recipients. The program peaked at $110.7 billion in October 2008.
“We see this not as the end of a process but really a significant step forward in opening the veil of secrecy that exists in one of the most powerful agencies in government,” Senator Bernard Sanders, the Vermont Independent who wrote the provision on Fed disclosure, said to reporters Nov. 17.
U.S. central bankers stepped outside of their traditional role as a lender of last resort to banks as credit markets nearly ground to a halt in the wake of Lehman’s bankruptcy on Sept. 15, 2008. Bernanke pushed the boundaries of the Fed’s powers, using section 13(3) of the Federal Reserve Act, which allowed the central bank to aid non-banks under “unusual and exigent circumstances.”
Over time, the Fed would provide financing for such diverse borrowers as U.S. corporations who needed to sell commercial paper and to money managers who wanted to invest in consumer auto loans.
Today’s information relates to aid from Dec. 1, 2007, through July 21, 2010, when President Barack Obama signed Dodd-Frank into law. The act requires the Fed, after a two-year delay, to identify firms that, following the law’s passage, borrow through its discount window and participate in its purchases or sales of assets such as mortgage-backed securities and Treasuries.
The Dodd-Frank legislation has also limited the Fed’s emergency lending powers from now on to programs with broad-based eligibility, curtailing bailouts of individual institutions.