Libya-Owned Bank Got 73 Loans From Fed Discount Window Totaling $35 Billion At 0.25% Interest

Excerpt From Bloomberg

Arab Banking Corp., the lender part- owned by the Central Bank of Libya, used a New York branch to get 73 loans from the U.S. Federal Reserve in the 18 months after Lehman Brothers Holdings Inc. collapsed.

The bank, then 29 percent-owned by the Libyan state, had aggregate borrowings in that period of $35 billion -- while the largest single loan amount outstanding was $1.2 billion in July 2009, according to Fed data released yesterday. In October 2008, when lending to financial institutions by the central bank’s so- called discount window peaked at $111 billion, Arab Banking took repeated loans totaling more than $2 billion.

“ABC has a robust balance sheet, is amply capitalized and currently maintains a comfortable liquidity position,” the company said in an e-mailed statement. “ABC currently has no outstanding loans under any Federal Reserve, or other, emergency lending program.”

Arab Banking reported a loss of $880 million in 2008 as it took a $1.1 billion charge tied to structured investment vehicles and derivative products known as collateralized debt obligations. Arab Banking recovered during the next two years, posting profits totaling $265 million.

Libya previously shared the bank with the Abu Dhabi Investment Authority and the Kuwait Investment Authority, both sovereign investment funds. The Libyan Central Bank bought out the Abu Dhabi stake in 2010 and took majority control, which prompted Fitch Ratings in December to downgrade Arab Banking’s credit rating.

In March, after the U.S. froze Libya’s assets, Fitch downgraded the bank’s credit rating again, this time to “junk” status. Contracts to protect Arab Banking’s debt, which typically rise as investor confidence deteriorates, increased by 186 basis points to 500 during March. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

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• Fed Discount Window Data Released

Bernie Sanders Letter To Bernanke: Why Did The Fed Bailout The Central Bank Of Libya?

73 discount window loans to Libya totaling $35 Billion at .25%...

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Read the Letter

WASHINGTON, March 31 – Sen. Bernie Sanders (I-Vt.) today questioned why the Federal Reserve provided more than $26 billion in credit to an Arab intermediary for the Central Bank of Libya.

The total includes at least $3.2 billion in loans that the Fed was forced to make public today in addition to earlier revelations under a Sanders provision in the Wall Street reform law.

Sanders also asked why the Libyan-owned bank and two of its branches in New York, N.Y., were exempted from sanctions that the United States this month slapped on other Libyan businesses to pressure Col. Moammar Gadhafi’s government.

“It is incomprehensible to me that while creditworthy small businesses in Vermont and throughout the country could not receive affordable loans, the Federal Reserve was providing tens of billions of dollars in credit to a bank that is substantially owned by the Central Bank of Libya,” Sanders said.

In a letter to Federal Reserve Chairman Ben Bernanke and others, Sanders asked why the central bank made at least 46 emergency, low-interest loans to the Arab Banking Corp., in which the Central Bank of Libya owns a 59 percent stake.

In the same letter, Sanders asked Treasury Secretary Timothy Geithner why the Treasury Department on March 4 let the Libya-controlled bank skirt the economic sanctions against Libya.

The senator also questioned why the Bahrain-based Arab Banking Corp. is even allowed to operate branches inside United States. “Why would the U.S. government allow a bank that is predominantly owned by the Central Bank of Libya – an institution on which the U.S. has imposed strict economic sanctions –to operate two banking branches within our own borders?” Sanders asked.

The Fed transactions were made public earlier this year as a result of a Sanders provision in the Wall Street reform law that forced the U.S. central bank to reveal which financial institutions it bailed out during the financial crisis from 2007 to 2010.

In another dubious twist, the Fed loans, at interest rates as low as 0.25 percent, relied on U.S. Treasury securities as collateral. In other words, at the same time that the Arab Banking Corp. was borrowing money at almost zero interest from one arm of the government, the Fed, it was lending money at a higher interest rate to another arm of the U.S. government, the Treasury Department.

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