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NEW YORK (
Federal Reserve Chairman Ben Bernanke launched a strong rebuttal against recent articles that suggested that the central bank's emergency lending program in the 2008 financial crisis helped big banks rake in billions in profits.
In a letter to the Committee on Banking, Housing and Urban Affairs, Bernanke said the articles contained a variety of "egregious errors and mistakes."
Federal Reserve Chairman Ben Bernanke
A Bloomberg Markets
published Nov. 27 said the central bank had lent or guaranteed $7.7 trillion as of March 2009 to rescue the financial system. It also estimated that the big banks, including
Bank of America(BAC - Get Report),
JPMorgan Chase(JPM - Get Report),
Wells Fargo(WFC - Get Report) and
Citigroup- made about $13 billion in profits by taking advantage of money lent by the Fed at below-market rates.
Bernanke said that the total credit outstanding under liquidity programs never exceeded $1.5 trillion. He said the inaccurate and misleading estimates by various articles could be based on several errors including "double counting".
"Because much of the lending was on a revolving basis and made either overnight or for short durations (30,60,90 days or even overnight), such double counting could lead to a gross overestimate of the actual amount of lending."
Another reason for the errors could have been the counting of potential lending as actual lending. For example, while $200 billion was authorized under the TALF program, only $70 billion was lent out to banks.
The chairman also emphasized that all the emergency assistance had been paid back or was on track to being fully repaid.
Also, the article failed to mention that the emergency lending program had made money for American taxpayers. The program generated $20 billion in interest income for the Treasury. Moreover, in 2009 and 2010, the Fed returned over $125 billion in excess earnings on its operations, including emergency lending, he noted.
Bernanke also clarified that the Fed's lending facility was not made at below-market rates but at a penalty above normal market rates so that the borrowers had an economic incentive to exit the facilities as market conditions normalized.
--Written by Shanthi Bharatwaj in New York
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