WASHINGTON – U.S. Central FCU borrowed billions of dollars in dozens of short-term emergency loans from the Federal Reserve’s discount window as losses on the central bank for credit unions continued to grow in the summer and fall of 2008, according to records made public by the Fed yesterday.
The Fed records, for example, show U.S. Central borrowing $1 billion for two weeks from the discount window November 4, 2008, and following it up with regular billion-dollar loans, culminating in a $5 billion loan on November 12, 2008.
The increased lending from the discount window came as the Fed cut the loan rate by 50 basis points and as mounting losses on investments were making it increasingly expensive for the Lenexa, Kan., corporate giant to borrow in the public markets by selling short-term commercial paper, or at the Federal Home Loan Bank of Topeka, where it had almost exhausted a $7 billion line of credit.
The one-time $52 billion corporate was also tapping into the Fed’s specially created short-term Term Auction Facility for billions of dollars at the time, topping out at a $5 billion 28-day loan, the Fed’s records show.
The Fed’s lending, however, was not enough to save the one-time central bank for credit unions, as NCUA was needed to chime in with an emergency $1 billion loan of its own in January 2009, just two months before the increasing losses required it to take over U.S. Central in the biggest credit union failure ever.
Several other credit unions also tapped into the Fed’s discount window during the heightening financial crisis in 2008, but growing losses barred some from accessing the emergency loans, including Members United Corporate FCU, which was also eventually taken over by NCUA. WesCorp FCU tapped the Fed for $450 million on Nov. 7, 2008, then for $275 million on Nov. 12.
At the time the normal credit union sources for liquidity were drying up, with several corporates teetering near insolvency, and several Federal Home Loan Banks also suffering liquidity crunches. So several natural person credit unions made use of the Fed's low-rate loans.
Alaska USA FCU made regular use of the loans in the spring of 2008 then later in the year and throughout 2009. Other credit unions using the discount window were: Northwest Community CU, Spokane Teachers CU, Scott CU, Pioneer CU, First Financial FCU, Polie and Fire FCU, OnPoint Community CU, New England FCU and North Carolina State Employees' CU.
Credit union borrowing from the Fed reached a fever-pitch in November and December of 2008 when the credit markets seized up, the records show. At that time U.S. Central loans outstanding reached $6 billion, while WesCorp ratcheted up its lending from just $200 million to $3 billion. Several big credit unions were also tapping the discount window for funds, including Alaska USA ($375 million); America First CU ($58 million); Visions FCU ($8.2 million) and Eastern Financial Florida CU, the Florida giant that eventually failed in the spring of 2009 ($40 million).
The Fed’s records show an extraordinary use of the discount window by banks large and small, and many foreign institutions during the growing financial crisis. Among the largest borrowers were European banks Dexia SA and Depfa, a subsidiary of German Hypo Real Estate Group. Banks from Spain, France and Japan also tapped into the Fed’s discounted loan facility.
The Fed usually keeps the records of its lending activities secret so as not to trigger a run on any one institution but the extraordinary records of activity during the financial crisis were ordered made public by a federal court after a lawsuit by several leading news organizations.
