SMH/Bloomberg

Credit Suisse, Goldman Sachs and Royal Bank of Scotland each borrowed at least $US30 billion ($29 billion) in 2008 from a Federal Reserve emergency lending program whose details weren’t revealed to shareholders, members of Congress or the public.

The $US80 billion initiative, called single-tranche open-market operations, or ST OMO, made 28-day loans from March through December 2008, a period in which confidence in global credit markets collapsed after the September 15 bankruptcy of Lehman Brothers Holdings.

Units of 20 banks were required to bid at auctions for the cash. They paid interest rates as low as 0.01 per cent that December, when the Fed’s main lending facility charged 0.5 per cent.

“This was a pure subsidy,” said Robert A. Eisenbeis, former head of research at the Federal Reserve Bank of Atlanta and now chief monetary economist at Florida-based Cumberland Advisors. “The Fed hasn’t been forthcoming with disclosures overall. Why should this be any different?”

The Federal Reserve Bank of New York, which oversaw ST OMO, posted aggregate data about the program on its website after each auction, said Jeffrey V. Smith, a New York Fed spokesman. By increasing the availability of short-term financing when private lenders were under pressure, “this program helped alleviate strains in financial markets and support the flow of credit to U.S. households and businesses,” he said.

Read Full Article