ECB takes place of Fed loans for European banks

European banks heavily supported by the US Federal Reserve at the height of the financial crisis have since weaned themselves off these loans, even as the struggle for funding in Europe gets tougher. Belgian-French bank Dexia, revealed as the biggest user of US central bank funding after Lehman Brothers' collapse in September 2008, said on Friday it no longer had any outstanding loans from the Fed.
These were reduced to zero in January 2010, the lender said, while its reliance on funding from the European Central Bank (ECB) has dropped to 17 billion euros ($24.06 billion) from a peak level of about 40 billion euros. "The Fed's emergency-lending facility has been used by Dexia to finance US assets only," Dexia said in a statement.
Data released this week by the Fed showed European banks to be the main beneficiaries of loans from its co-called discount window on October 29, 2008 at the top of the funding crisis, when borrowing peaked at $111 billion. But while the data sheds a rare light on some of the manic borrowing that went on at one of the most turbulent moments in financial history, it only provides a partial picture of the funding sought by European banks at the time.
The European Central Bank has never disclosed bank-by-bank borrowing data, but commercial banks' use of the ECB's open market operations was almost ten times the US amount on the day borrowing at the Fed discount window peaked. At 774 billion euros ($1,096 billion), the numbers suggest Europe relied far more heavily on its own central bank.
Dexia and Depfa, the failed Dublin-based unit of the now nationalised German group Hypo Real Estate, accounted for nearly half of the Fed borrowing on October 29, 2008. Fortis, the Dutch-Belgian bank that was broken up during the height of the crisis, also drew some $7 billion on either side of a weekend when the Dutch, Belgians and Luxembourg pumped 11.2 billion euros ($15.85 billion) into its operations.
But Fortis Bank, now majority-owned by BNP Paribas and known as BNP Paribas Fortis, has since paid back the money. Dexia has sold off its loss-making US monoline insurance business Financial Security Assurance since the crisis, and the liquidity support its Credit Local subsidiary provided to US municipal issuers is being run off.
Although US banks such as Wachovia were also shown to be heavy users of the Fed's discount window between August 2007 and March 2010, the country's top banks mainly turned to other facilities set up to cope with the crisis. Citigroup, Morgan Stanley and Merrill Lynch, now part of Bank of America were the three biggest recipients of the Fed's $3.3 trillion emergency lending. European banks also tapped this and a special programme set up for broker-dealers - with the biggest $47.9 billion loan from that facility going to Britain's Barclays. The loan has now been fully repaid.