NEW YORK — Citigroup and Bank of America were the reigning champions of finance in 2006 as home prices peaked, leading the 10 biggest U.S. banks and brokerage firms to their best year ever with $104 billion of profits.
By 2008, the housing market's collapse forced those companies to take more than six times as much, $669 billion, in emergency loans from the Federal Reserve. The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now the full amounts have remained secret.
Fed Chairman Ben Bernanke's unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley, got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress.
"These are all whopping numbers," said Robert Litan, a former Justice Department official who, in the 1990s, served on a commission investigating the causes of the savings and loan crisis. "You're talking about the aristocracy of American finance going down the tubes without the federal money."
It wasn't just American finance. Almost half of the Fed's top 30 borrowers, measured by peak balances, were European firms. They included Edinburgh-based Royal Bank of Scotland, which took $84.5 billion. Germany's Hypo Real Estate Holding borrowed $28.7 billion, an average of $21 million for each of its 1,366 employees.
The $1.2 trillion peak on Dec. 5, 2008 — the combined outstanding balance under the seven programs tallied by Bloomberg — was almost three times the size of the federal budget deficit that year and more than the total earnings of all federally insured banks in the U.S. for the decade through 2010, according to data compiled by Bloomberg.
"Why in hell does the Federal Reserve seem to be able to find the way to help these entities that are gigantic?" Rep. Walter B. Jones, R-N.C., said at a June 1 congressional hearing in Washington. "They get help when the average businessperson down in eastern North Carolina, and probably across America, they can't even go to a bank they've been banking with for 15 or 20 years and get a loan."
Fed officials had resisted releasing borrowers' identities, saying it would stigmatize banks, damaging stock prices or leading to depositor runs. Last year's Dodd-Frank Act mandated an initial round of such disclosures in December. A group of the biggest commercial banks last year asked the Supreme Court to keep some details secret. In March, the high court declined to hear that appeal, and the central bank released records.
Data gleaned from 29,346 pages of documents and from other Fed databases reflect seven programs from August 2007 through April 2010: the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, Commercial Paper Funding Facility, discount window, Primary Dealer Credit Facility, Term Auction Facility, Term Securities Lending Facility and single-tranche open market operations.
The data show for the first time how deeply the world's largest banks depended on the U.S. central bank. While the Fed's last-resort lending programs generally charge above-market interest rates to deter routine borrowing, that practice sometimes flipped during the crisis. On Oct. 20, 2008, for example, the central bank agreed to make $113.3 billion of 28-day loans through its Term Auction Facility at a rate of 1.1 percent, according to a press release at the time.
The rate was less than a third of the 3.8 percent that banks were charging each other for one-month loans on that day.
Whether banks needed the Fed's money for survival or used it because it offered advantageous rates, the central bank's lender-of-last-resort role amounts to a free insurance policy for banks in a disaster, said Richard Herring, a finance professor at the University of Pennsylvania in Philadelphia who has studied financial crises.
Access to Fed backup support "leads you to subject yourself to greater risks," Herring said. "If it's not there, you're not going to take the risks that would put you in trouble and require you to have access to that kind of funding."