This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Bernanke Defends 'Secret' Bank Bailout

Stocks in this article: BAC C GS MS JPM WFC

NEW YORK ( TheStreet) -- 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 article 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), JPMorgan Chase (JPM), Wells Fargo (WFC) 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

>To contact the writer of this article, click here: Shanthi Bharatwaj.

Readers Also Like:

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,074.64 +44.43 0.25%
S&P 500 2,089.90 +8.02 0.39%
NASDAQ 4,798.6370 +25.1650 0.53%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs