Greater Transparency Needed for Fed's Special Lending Facilities

As
funds from the Troubled Assets Relief Program (TARP) are subjected to
growing public scrutiny, a new report from the Center for Economic and
Policy Research (CEPR) calls attention to the lack of accountability
for the funds from the special lending facilities created by the
Federal Reserve Board over the last year. It notes that few details
have been given about the specific loan amounts, recipients, or the
collateral posted.

Earlier this month in testimony before the Senate Budget Committee,
Federal Reserve Board Chairman Ben Bernanke said of the Federal
Reserve's lending programs, "there is no subsidy." This paper outlines
a case showing how there could in fact be a subsidy involved in two of
the Fed's ten special lending facilities.

The study, "Investment
Bank Welfare: The Implicit bank Subsidies in the Primary Dealer Credit
Facilities (PDCF) and the Term Securities Lending Facility (TSLF)
Created by the Federal Reserve Board," produces calculations of the
amount of money being dispersed by the government to the 16 primary
dealers and investment banks who qualify to borrow through these
facilities under the assumption that each borrows in proportion to its
assets. The study then uses Fed data on the interest rate charged for
loans from these lending facilities to calculate the potential subsidy
in this lending.

"The Fed's lending may indeed be serving some purpose by keeping
solvent banks afloat during the liquidity crisis, but there is a lack
of transparency," said report co-author and CEPR Co-Director, Dean
Baker. "It is in the public's interest to know who is receiving these
loans and under what terms. Congress may also want to impose conditions
for receiving these funds comparable to the conditions placed on
recipients of TARP money."

Currently, the total funds outstanding through these special loan
facilities is more than 40 percent larger than the amount that has been
lent by the Treasury Department under the Troubled Asset Relief Program
(TARP). The report identifies the largest beneficiaries of funds from these loan facilities and calculates the subsidies received.

The full Report can be found on the CEPR website here.