Bloomberg News

Bernanke Says News Articles on Fed Aid Have ‘Egregious’ Errors

December 13, 2011

Dec. 6 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said recent news articles about the central bank’s emergency lending contain “egregious errors.”

“The articles recycle information that has been disclosed to the Congress and the American people in various forms for some time,” Bernanke said in letters to Senate Banking Committee Chairman Tim Johnson and the three other senior lawmakers who oversee the Fed. The Fed posted the letters and an accompanying four-page staff memo on its website today.

The Fed was compelled to identify financial-crisis loan recipients by Congress under the 2010 Dodd-Frank Act and by courts after losing lawsuits brought by Bloomberg News and News Corp.’s Fox News Network LLC. The Bernanke letter and staff memo, without identifying any news organization, referred to points from a Nov. 28 Bloomberg article, which was based on an analysis of public data.

“The disclosure issues raised in these articles have already been addressed and settled, first by the Federal Reserve through a variety of reports and public postings, and then by Congress after a public debate,” Bernanke, 57, said in the letter.

The Fed staff’s memo is billed as a “correction of recent press reports.” The central bank never kept the creation of any lending program secret, and while the names of borrowers weren’t revealed until Congress required some disclosures, the Fed reported regularly on overall balances in the facilities and showed average aggregate loans for the largest borrowers each month, the memo said. “Congress was well informed of the volume of borrowing by large banks,” it said.

Total Credit

The Fed memo said one article asserted that the central bank “lent or guaranteed more than $7.7 trillion during the financial crisis.” The memo said that and higher estimates are “wildly inaccurate,” and that the peak total credit outstanding was about $1.5 trillion in December 2008.

In a March 31, 2009, story, Bloomberg News tallied the potential commitments of the Fed using as sources statements the central bank had made and its weekly balance sheet. The story said the Fed “spent, lent or committed” $7.77 trillion. The Bloomberg story on Nov. 28 said the figure included “guarantees and lending limits.”

The central bank’s memo said the Nov. 28 article also “incorrectly asserted that banks ‘reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates.’”

Penalty Pricing

Bloomberg’s $13 billion estimate was based on the net interest margin that banks reported for the periods in which they took emergency loans. Net interest margin is the difference between what banks earn on loans and investments and their borrowing expenses. The 190 firms for which data were available would have produced income of $13 billion, assuming all of the bailout funds were invested at the margins reported, the data show.

“Most of the Federal Reserve’s lending facilities were priced at a penalty over normal market rates so that borrowers had economic incentives to exit the facilities as market conditions normalized, and the rates that the Federal Reserve charged on its lending programs did not provide a subsidy to borrowers,” the Fed memo said.

In addition to Johnson, a South Dakota Democrat, the letters, dated today, were sent to Alabama Senator Richard Shelby, the senior Republican on the banking panel; House Financial Services Committee Chairman Spencer Bachus, also an Alabama Republican; and Massachusetts Representative Barney Frank, the panel’s senior Democrat.

--Editors: Christopher Wellisz, James Tyson

To contact the reporter on this story: Scott Lanman in Washington at

To contact the editor responsible for this story: Christopher Wellisz at

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