‘Shadow’ banks bol­stered by US Fed

The Pak Banker - - Company& -

NEW YORK: The Fed­eral Re­serve gave more sup­port to the world's biggest fi­nan­cial com­pa­nies, in­clud­ing Bar­clays, Cit­i­group and Royal Bank of Scot­land, than the di­rect loans it dis­closed this month in re­sponse to con­gres­sional man­dates.

That's be­cause about $140 bil­lion, or 20 per­cent of the Fed's Com­mer­cial Paper Fund­ing Fa­cil­ity, went to af­fil­i­ates of four firms that pro­vided fi­nanc­ing to banks and other com­pa­nies: Hud­son Cas­tle, BSN Hold­ings, Lib­erty Hamp­shire Co. and Northcross, cen­tral bank data show. Banks around the world ben­e­fited. The af­fil­i­ates were ve­hi­cles known as con­duits - part of what a Fed re­port in July called the "shadow bank­ing" sys­tem that re­moved as­sets from com­pa­nies' bal­ance sheets and turned toxic debt into top-rated se­cu­ri­ties. At least a dozen banks had promised to pro­vide con­duits fi­nanc­ing or other sup­port in an emer­gency, re­ports by Stan­dard & Poor's show.

The shadow bank­ing sys­tem "con­trib­uted sig­nif­i­cantly to as­set bub­bles in res­i­den­tial and com­mer­cial real-es­tate mar­kets prior to the fi­nan­cial cri­sis" by ob­scur­ing risks, the Fed it­self said in the study. The Fed's dis­clo­sures on Dec. 1 didn't iden­tify bor­row­ers from the four con­duits. The funds were re­paid. Spokes­men for New York-based Cit­i­group, London's Bar­clays and Royal Bank of Scot­land, based in Ed­in­burgh, wouldn't say whether their firms bor­rowed money from con­duits. Rep­re­sen­ta­tives of the con­duits ei­ther de­clined to com­ment or didn't re­spond to mes­sages. -PB News

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