Press Release

Greater Transparency Needed for Fed’s Special Lending Facilities

March 12, 2009

Contact: Karen Conner, (202) 293-5380 x117Mail_Outline

March 12, 2009

Greater Transparency Needed for Fed’s Special Lending Facilities

Funds 40 percent larger than TARP, but subject to less scrutiny.

For Immediate Release: March 12, 2009
Contact: Alan Barber (202) 293-5380 x115

WASHINGTON, D.C.– 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.


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