Figures released by the US Federal Reserve last week show that Bank Hapoalim (TASE: POLI) and Israel Discount Bank (TASE: DSCT) were among the banks that received emergency loans from the Fed in 2008-09 under the Term Auction Facility (TAF). Bank Hapoalim New York Branches and Israel Discount Bank of New York borrowed $3.75 billion altogether. Blogger Eran Politzer, a former economics correspondent for "Voice of Israel" radio, broke the story.
Last Thursday, the Fed released the list of financial institutions that received the TAF credit during the crisis. Israeli banks were among recipients of Fed money, in addition to banks such as Citigroup Inc. (NYSE: C), Merrill Lynch, and Morgan Stanley, which needed trillions of dollars in loans.
In January-June 2008, Bank Hapoalim used TAF loans ten times. Each loan was $100-300 million, and the bank usually held about $500 million in Fed money at any one time. Altogether, Bank Hapoalim received $2.4 billion in loans. Bank Hapoalim New York Branches was responsible for mortgage-backed securities (MBS) and credit default swaps (CDS), which resulted in the branch losing $1.27 billion in 2008. As a result of the losses, Bank Hapoalim was forced to inject $950 million into Bank Hapoalim New York Branches.
Discount Bank New York used the Fed's TAF loans nine times, mostly in 2009. The last loan was repaid in December 2009. Each loan was for $50-200 million, and the bank held $600 million of Fed credit at its peak. Altogether, the bank borrowed $1.35 billion from the Fed. Discount Bank New York's CEO at the time was Reuven Spiegel, who will shortly replace Giora Ofer as CEO of Israel Discount Bank.
Bank Hapoalim said in response, "In early 2008, the Fed encouraged banks to use cheap credit. The New York Branches decided to take advantage of the business opportunities, as did many banks, in small doses for brief periods, even though the branches did not need the surplus liquidity."
Discount Bank said in response, "The loans at preferential terms were offered at the initiative of the US government to institutions operating in the US, irrespective of their financial condition. Discount Bank New York decided to utilize this option to use sources that were much cheaper than were normally available at the time. We emphasize that this decision was based on business considerations on the cost of the sources, and not because of any difficulties."
The Fed created the TAF program in late 2007 to enable banks operating in the US to obtain liquidity without having to officially apply for the loans, thereby preventing signaling difficulties or weakness. The money was given for four weeks, and was later extended to twelve weeks.
Published by Globes [online], Israel business news - www.globes-online.com - on December 5, 2010
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