UK banks borrowed more than $1 trillion from US Federal Reserve

British banks borrowed more than $1 trillion (£640bn) from the Federal Reserve during the financial crisis, led by Barclays following its swoop on the US business of Lehman Brothers.

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Richard Blackden and Harry Wilson
Telegraph

The disclosures came because the Dodd-Frank Wall Street Reform Act forced the Fed to reveal which banks and companies it lent money to in an effort to shore up the financial system from the end of December 2007 onwards.

It released the details of more than 21,000 individual transactions on its website on Wednesday, which showed that British banks represented more than a third - about $1.5 trillion - of the $3,300bn lent by the US authorities to prop up the financial sector.

Barclays borrowed $863bn from the Fed, with almost half coming in overnight loans through the Primary Dealer Credit Facility, a programme established by the central bank to help those banks that deal in US Treasuries.


Barclays has since repaid all its loans and said that much of its then borrowing was down to its purchase of Lehman’s US business.

Royal Bank of Scotland borrowed $446bn, Bank of Scotland $181bn, Abbey National $19bn and HSBC borrowed less than $10bn.

The figures for the banks represent the total amount they borrowed and not the total outstanding borrowing at any one point.

RBS said it no longer used any of the Fed scheme and had “significantly reduced” its borrowing from central banks.

The Fed said on Wednesday that the fact banks from across the world has tapped its emergency lending “reflected the severe market disruptions during the financial crisis and generally did not reflect participants’ financial weakness”.

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Bernanke: Long-Term Unemployment Has SEVERE 'Social Consequences'

Kristina Cooke
Reuters

NEW YORK -- Federal Reserve Chairman Ben Bernanke warned on Tuesday that a long period of high unemployment could exact a steep social cost, as he and other Fed officials defended the central bank against criticism of its easy money policy.

Minneapolis Fed President Narayana Kocherlakota said the Fed's controversial bond purchase program was needed given a "troubling" slowdown in U.S. economic growth and too low inflation and employment.

The Fed said earlier this month it would buy $600 billion in Treasury bonds to support a weak economy. Core inflation has averaged well below the Fed's informal target of about 2 percent and the jobless rate remains stubbornly high.

"There are obviously very severe economic and social consequences from this level of unemployment," Bernanke said at Ohio State University. "So getting new jobs, getting unemployment down is of an incredible importance."

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US Federal Reserve set on QE2 course as dissenter speaks out

The Federal Reserve's leading opponent against more quantitative easing said there's "no strong evidence" it will work, as the minutes from the central bank's last meeting cemented expectations that his colleagues believe more money printing is necessary.

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Richard Blackden
Telegraph

Thomas Hoenig, the president of the Federal Reserve Bank of Kansas, on Tuesday launched his most strident attack yet against QE, arguing it would not help drive an economic recovery.

"There is simply no evidence the additional liquidity would be particularly effective in spurring new investment, accelerating consumption, or cushioning or accelerating the deleveraging that is hopefully winding down," Mr Hoenig told an audience in Denver.

However, the separate release of the minutes of the Fed's Open Market Committee (FOMC) meeting on September 21 underlined that Mr Hoenig is in a minority of one in his dissent.



Although the minutes acknowledged that FOMC members expect the recovery to be sustained in 2011, much of the nine-page statement emphasised their fears that an already faltering economy could lose further momentum. In particular, the minutes voiced concern over a slowing in business investment, muted inflation and the still high level of unemployment.

"Several members noted that unless the pace of economic recovery strengthened or underlying inflation moved back toward a level consistent with the Committee's mandate, they would consider it appropriate to take action soon."

Stock markets were cheered by the news with the S&P 500 erasing losses after the release of the minutes, which also explained that the Fed's statement of Sept 21 was designed to convey "members' sense that such accommodation may be necessary before too long.

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