Ben Bernanke’s Secret Global Bank

Thanks to tremendous public pressure and the recently-passed Wall Street reform bill, the U.S. Federal Reserve was forced to reveal the details of its emergency bailout of the financial sector for the first time yesterday. From a quick review of the data now available on the Federal Reserve website, we can see that the Fed took an expansive internationalist view of its role, prompting U.S. Senator Bernie Sanders (I-Vermont) to ask: “Has the Federal Reserve Become the Central Bank of the world?”

When AIG was bailed out out in Sept. 2008 and immediately passed on huge sums to overseas counterparties, including Société Générale (France) and Deutsche Bank (Germany), there was a public uproar. The Fed data out today confirms what many suspected. This back-door bailout of foreign banks was just the tip of the iceberg. The Fed data covers 13 programs amounting to some $3.3 trillion in loans. We could only look at a few, but in every program examined, foreign banks were huge beneficiaries of a taxpayer-funded lifeline.

Central Bank Liquidity Swap Lines Aided Foreign Central Banks

Central banks around the world, the governmental entities that serve as a nation’s primary monetary authority, drew heavily on the Fed’s currency swap lines beginning in December of 2007. The Fed says, “To address severe strains in global short-term dollar funding markets, the Federal Reserve established temporary central bank liquidity swap lines (also referred to as reciprocal currency arrangements) with a number of foreign central banks.” In other words, the Federal Reserve loaned a boatload of cash to central banks around the globe including billions to the European Central Bank and at least 10 others: Australia, Britain, Denmark, Japan, Mexico, Norway, South Korea, Sweden, Switzerland and England.

Mortgage-Backed Securities Purchase Program Aided Foreign Private Banks

Private foreign banks also received billions from the Fed in exchange for mortgage backed securities (MBS). The Fed created its MBS program in November 2008 and eventually paid out $1.25 trillion. These facts were known. What we did not know was that approximately half of these purchases were from overseas financial firms, including billions from Barclays Capital (U.K.), Credit Suisse (Switzerland), Deutsche Bank (Germany), Royal Bank of Scotland (England), UBS (Switzerland) and Nomura Securities (Japan). The numbers are huge. Duetsche Bank sold some $290 billion worth of MBS to the Fed.

Term Securities Lending Facility Loaned Free Money

The Huffington Post reported that like U.S. banks, major European firms benefited from the Term Securities Lending Facility. Under this program, the banks were loaned securities for four-week intervals while paying fees that amounted to a whopping 0.0078 percent. Five EU firms took advantage of this free money:

Credit Suisse (Switzerland), Deutsche Bank (Germany), Royal Bank of Scotland (U.K.), Barclays (U.K.), and BNP Paribas (France) -- borrowed $5.2-$6.2 billion in Treasuries 20 different times. The one-time fees they paid on each transaction ranged from $403,277.78 to $481,110. Deutsche led the way with seven such deals.

Commercial Paper Funding Facility Aided Firms Around the Globe

In the fall of 2008, the Fed created the Commercial Paper Funding Facility to help companies that had trouble getting short-term loans called commercial paper. While most Americans can understand loans to General Electric, Ford Motor, and Harley-Davidson, they are going to be having a harder time understanding billions of dollars worth of loans to overseas banks. UBS (Switzerland) was the big winner with $74.6 billion in paper bought according to the New York Times. The list of banks is eclectic from uber-performing Royal Bank of Canada to underperforming Allied Bank of Ireland. Also included Robobank (Netherlands) and Banco Espirito Santo (Portugal.)

AIG Redux?

When AIG sent $24 billion to Société Générale and Deutsche Bank, Congress launched an investigation. Now these amounts look relatively small.

Why lend to foreign banks, who could petition for help from their central banks overseas? How did these loans benefit the American taxpayer? How much has been paid back? From our accounting at the Center for Media and Democracy, approximately $2 trillion in Fed loans are still outstanding. (The Fed accounted for 13 programs, we accounted for 21).

When asked why Canadian banks were getting aided by the Federal Reserve, Canadian trade analyst Ellen Gould pointed out, “The United States is a signatory to the World Trade Organization’s (WTO) Agreement on Financial Services. Under that pact, the Fed cannot favor a U.S. bank with 20,000 employees over a foreign bank with 20 employees. It is required to treat all banks with a subsidiary in the United States the same.”

While our treaty obligations are clear and well known to the administration -- as Tim Geithner was a key negotiator of the WTO financial service agreement back in the late 1990’s -- I favor Gould’s second theory. With a little more digging, we might find out that all these foreign banks are in fact Goldman Sachs counterparties.

Mary Bottari

Mary Bottari is a reporter for the Center for Media and Democracy (CMD). She helped launch CMD's award-winning ALEC Exposed investigation and is a two-time recipient of the Sidney Prize for public interest journalism from the Sidney Hillman Foundation.


It is way past time to put an end to the Federal Reserve Bank. It operates only for its own interest and not the interest of the United States and certainly not in the interest of the people of the United States. If they had pumped that 3.3 Trillion into the US economy it would have ended the financial crisis and in doing so it would have helped the rest of the world to weather the financial storm.

Who is accountable for the foreign loans if they go into default? If there is criminal activity involved, who would/could* bring charges and what actions could be taken? Does the WTO trump our legal system? Indeed, IS the "Federal" Reserve, now the "Global" Reserve? How are ordinary American citizens represented at the Federal Reserve? What does it mean if these foreign institutions ARE Goldman Sachs counterparties? This is all very hard to understand. I'm not an economist, and I don't want to be.

I am tired of this banker talk. I want the processes to be explicated not mystified. I am 80 years old. Can anyone tell me how much has been stolen from me in all my years by this perverse inflationary money system? Why has the Government allowed this lying, stealing and deceiving?!

Dear Mr. Mann: Thank you for taking the time to write in about this! I am not sure how much money has been taken from you by this system, but it is clear to me that the regulatory agencies have been captured by the industries they regulate. The Secretary of the Treasury, Tim Geithner, was the president of the New York Federal Reserve, and he has--unfortunately--opposed crucial reforms requiring that the big banks derivatives trading desks be spun off and opposed rules like the "Volcker Rule" that would prevent banks that enjoy taxpayer guarantees from engaging in high risk behaviour, such as investing in hedge funds, and he hired a Goldman Sachs lobbyist, Mark Patterson, to serve as his Chief of Staff at the Treasury Department. But, the close ties between the Treasury Department and the big Wall Street speculators did not begin with this administration. President George W. Bush's last Treasury Secretary, Henry Paulson was the former CEO of Goldman Sachs. I think the government has allowed Wall Street to get away with the risky gambling practices that have undermined our economy because too many politicians rely on the industries they are supposed to be regulating for campaign donations and lobbying support. Wall Street has used its extraordinary profits to exert undue influence on economic policy development in ways that ultimate harm ordinary Americans and the promise of the American dream. International trade policy, so-called "free trade" has been a boon to the bottom lines of the big corporations and has been a net loss to hard-working Americans in our industrial base. Geithner and his recent predecessors at Treasury have been big proponents of trade policies and other efforts to undo protections for ordinary people's economic futures that accrue big benefits to wealthiest few. The other candidates in the most recent presidential election also had close ties to bad financial policies--with McCain embroiled in the Savings and Loan crisis, and Palin an apologist for anything the Big Oil companies want to do. We do need major reforms to right the ship of state and put America back on track, including overturning the recent Supreme Court decision in Citizens United that put even more corporate money into our election and policymaking process. It can seem so daunting to try to fight back against these powerful interests but if we give up they will definitely win. We really need to ensure that the American promise of democracy--government by the people, of the people, for the people--does not become a nightmare of government by the corporations, of the corporations, for the corporations. The people in Washington are supposed to represent us, not the banks. But, unfortunately the new House leadership includes people like Alabama Rep. Spencer Baucus who recently said In Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve the banks." Such a view is simply astonishing and means we've got a lot of work to do in the coming year. I hope you will join us in our fight against these bad ideas, Mr. Mann! Lisa