A top House Democrat is calling for a hearing with Federal Reserve Chairman Ben Bernanke following a report that the central bank secretly committed more than $7 trillion to save banks during the financial crisis.
House Oversight and Government Reform Committee ranking member Elijah Cummings (Md.) sent a letter on Monday to panel Chairman Darrell Issa (R-Calif.) requesting the committee look into how banks "benefitted from trillions of dollars in previously undisclosed government loans provided at below-market rates."
“Many Americans are struggling to understand why banks deserve such preferential treatment while millions of homeowners are being denied assistance and are at increasing risk of foreclosure,” Cummings said.
The request comes on the heels of a Bloomberg report that said the Fed secretly committed more than $7 trillion as of March 2009 to rescuing the nation’s top financial institutions, and that these banks "reaped an estimated $13 billion of income" on the below-market rates.
"Unfortunately, officials from many of these financial institutions declined to comment about these loans, including officials from Goldman Sachs, JPMorgan, Bank of America, Citigroup, and Morgan Stanley," Cummings writes.
Information about the loans was withheld from Congress as lawmakers debated and passed the Dodd-Frank financial regulatory reform bill and Consumer Protection Act of 2010, Cummings said. Banks also failed to disclose the information to their shareholders.
Kenneth D. Lewis, then CEO of Bank of America, told shareholders on Nov. 26, 2008, that the company was “one of the strongest and most stable major banks in the world.” According to the Bloomberg report, he failed to disclose that “his Charlotte, North Carolina-based firm owed the central bank $86 billion that day,” Cummings writes.
The Bloomberg report disclosed that total assets at the largest six banks increased by 39 percent and executive compensation increased by 20 percent in the past five years, or by more than $146 billion in compensation in 2010.
This “secret financing helped America’s biggest financial firms get bigger and go on to pay employees as much as they did at the height of the housing bubble," according to economists cited in the report.
Dean Baker, co-director of the Center for Economic and Policy Research, said in the report that “getting loans at below-market rates during a financial crisis — is quite a gift.”
When Congress passed the Dodd-Frank Act, it required the Government Accountability Office to conduct a one-time audit of all loans and other financial assistance from Dec. 1, 2007, to July 21, 2010.
The report analyzed assistance — including mortgage-backed securities purchased through open market operations — with peak outstanding balances of only $3.5 trillion.