WASHINGTON — Federal Reserve Board Chairman Ben Bernanke took the unusual step Tuesday of publicly refuting media reports on the central bank's emergency lending programs during the financial crisis, arguing they were inaccurate and filled with "egregious errors."
In letters to the Congressional banking committees, Bernanke disclosed a four-page memo given to staff at the Fed disputing a number of facts in recent articles by Bloomberg News and other media outlets that portray the central bank as coming to the aid of big banks at the expense of the American public.
"These articles have largely repeated the same information in different formats, and have contained a variety of egregious errors and mistakes," Bernanke wrote.
While the Fed did not identify by name news organizations it was referencing in the memo, it offered some clues through specific details that point to a Nov. 27 Bloomberg Markets Magazine article which was headlined, "Secret Fed Loans gave Banks $13 Billion Undisclosed to Congress." The article claimed big banks had received $13 billion of income after the Fed had committed $7.7 trillion in guarantees and lending by March 2009.
In its memo, the Fed said it never conducted a "secret" lending program that was not disclosed to the public or Congress. "All of the programs were publicly announced when they were initiated, and information about all lending under the programs was publicly released," the central bank said.
Drew Kerr, a spokesperson for Bloomberg Markets magazine said, "We stand by our reporting."
The Fed also defended its decision not to disclose the names of counterparties and borrowers from the emergency facilities at the time of the event — a procedure, the Fed said, that is consistent with central banking practice.
"The Federal Reserve took great care to ensure that Congress was well-informed of the magnitude and manner of its lending," according to the Fed's memo. The memo also said Congress was well aware of the volume of borrowing happening by large banks, despite media accounts that suggested otherwise. It also took separate action on Dec. 1, 2010 to disclose the names of all counterparties and borrowers from the emergency lending facilities as required under Dodd-Frank.
Lending estimates cited in news reports — which have varied from $7.7 trillion to upwards of $24 trillion — are "wildly inaccurate," the Fed memo said.
Offering further details, the Fed's memo explained, "Total credit outstanding under the liquidity programs was never more than about $1.5 trillion; that was the peak reached in December 2008."
The Fed also made clear that "lending facilities were priced at a penalty over normal market rates" to incentivize borrowers to exit the program as market conditions normalized. In other words, banks didn't "take advantage of the Fed's below-market rates" as had been reported by Bloomberg, the central bank said.
The Fed suggested that inaccurate and misleading estimates could be based on several errors like double-counting; or in the event potential lending was counted as actual lending. For example, the Fed's Term Asset-Backed Securities Loan Facility, or TALF, program was authorized for $200 billion, but total lending never surpassed $70 billion.
Also distressing to the Fed was the fact news articles failed to emphasize that nearly all of the emergency assistance offered by the central bank had been fully repaid or was on track to be — a fact verified by both the Fed's auditors and the Government Accountability Office.
"Federal Reserve lending should in no way be compared with government spending," the memo stated. "Federal Reserve lending is repaid, with interest, and the Federal Reserve has never suffered a credit lost."
Loans issued to banks and other institutions benefited American taxpayers, the Fed said, by generating an estimated $20 billion in interest income for the Treasury Department.
Separately, the Fed said news articles which "misleadingly" depicted certain U.S. firms that were insolvent and in "deep trouble" receiving liquidity assistance was wrong. "Recipients of these loans generally suffered from temporary liquidity problems rather than being fundamentally insolvent," the Fed's memo said.