State owned Irish banks AIB and Bank of Ireland secretly borrowed a staggering $11.5billion from the US Federal Reserve as their share prices tumbled.
The Bloomberg agency has exposed the full extent of the US treasury’s credit to the beleaguered Irish banks as the property market crashed in Ireland and the Celtic Tiger collapsed.
Bloomberg has revealed that both Allied Irish Banks and Bank of Ireland were able to borrow $11.5billion in secret US liquidity during 2009 and 2010.
The US Federal Reserve has confirmed to Bloomberg that AIB borrowed up to $9.4billion while Bank of Ireland was exposed to $2.1billion in borrowings.
Bloomberg requested the information from America’s central bank under the Freedom of Information act.
The data released by the Federal Reserve shows that AIB’s borrowings extended to a total of 387 days while Bank of Ireland’s loan was for 295 days.
AIB’s daily balance with the Federal Reserve was $1.8billion while Bank of Ireland averaged $500million on a daily basis.
The Federal Reserve has yet to reveal who ended its deal with the Irish banks.
In total, the Fed provided a total of $1.2trillion in lendings to banks around the world and also supported industrial companies at the height of the recessionary fears.
American banks to benefit included Morgan Stanley, Citi and Bank of America.
Morgan Stanley was the largest borrower and received as much as $107.3billion while Citigroup took $99.5billion and Bank of America $91.4billion.
“These are all whopping numbers,” said Robert Litan, a former US Justice Department official. “You’re talking about the aristocracy of American finance going down the tubes without the federal money.”
Royal Bank of Scotland took $84.5billion off the Fed, the most of any non-US lender, and Swiss lender UBS got $77.2billion.
At its peak, at the start of December 2008, the Fed was exposed for $1.2trillion, almost three times the size of the US federal budget deficit that year and more than the total earnings of all federally insured banks in the US for the decade through 2010.
The Federal Exchange has denied any credit losses on the transactions.
A report by the Federal Reserve Bank of New York in February claimed that the central bank netted $13billion in interest and fee income from the programmes from August 2007 through December 2009.
“We designed our broad-based emergency programmes to both effectively stem the crisis and minimize the financial risks to the US taxpayer,” said James Clouse, deputy director of the Fed’s division of monetary affairs in Washington.
However a former IMF economist has warned that regulators are not taking action to prevent such loans again.
“Regulators are not going to go far enough to prevent this from happening again,” said Kenneth Rogoff, previously the chief economist at the IMF.