How Fed Crisis Aid Got Tested-wsj 12/9 : 2008년 금융위기 당시 FRB 의 긴급 구제금융 내역

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By SERENA NG And LIZ RAPPAPORT

The same Federal Reserve liquidity-injection program that helped borrowers from General Electric Co. to Harley-Davidson Inc. during the financial crisis revived an obscure investment vehicle that was closed out of the commercial-paper market long before the program was launched.

Fed Emergency Lending

Data released by the Fed last week show that Links Finance LLC, a structured investment vehicle managed by Bank of Montreal, and other entities that couldn't get funding elsewhere were beneficiaries of the central bank's effort to prop up the financial system.

In October 2008, Links issued about $500 million in three-month IOUs to a Fed program at an annual interest rate of 3.9%, according to data released by the Fed last week.

And as the financial crisis deepened, Wall Street began looking for ways to use the program to resurrect other SIVs that hadn't issued new debt since mid-2007, when investors became about their exposure to subprime debt.

The Fed didn't sustain any losses on its emergency-lending programs, but the disclosures provide new details about how some borrowers tested the limits of the Fed's liquidity backstops. The Fed's commercial-paper facility, which ran from October 2008 to February 2010, was a centerpiece of the central bank's rescue efforts.

Through programs like the CPFF and the Fed's Primary Dealer Credit Facility, the Fed made trillions of dollars in aid available to financial institutions and companies around the world in a bid to save the financial system from collapse. Officials credit the programs with providing crucial assistance to borrowers that had nowhere else to go when markets froze.

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The Fed didn't sustain any losses on its emergency-lending programs, but the disclosures provide new details about how some borrowers tested the limits of the Fed's liquidity backstops.

Amid the crisis, however, it was difficult, if not impossible, for the Fed to unmask all the motivations and financial engineering of borrowers that turned to its liquidity facilities, analysts say.

"There was an incredible informal network of vehicles that were moving money around and hiding risk. The aim was to get funding the cheapest way possible and regulatory capital relief," says Ann Rutledge, a principal at R&R Consulting, a structured-finance consulting firm in New York. "This is how Wall Street innovates, and it was hard for the Fed or anyone to keep track of."

A New York Fed spokesman said: "The Federal Reserve's objective was to provide liquidity and improve the functioning of financial markets in order to foster economic growth. The Fed's broad-based lending programs were very clear and transparent with regards to eligibility criteria. Programs were market-focused, not institution-focused, and any institution that satisfied all criteria could participate."

As loans were being made, Fed officials tried to monitor the emergency-liquidity programs to the extent they could, making changes sometimes in response to feedback from market participants.

In 2008, for example, the Fed disallowed financial institutions from pledging their own obligations as collateral for overnight loans, according to people familiar with the situation. Traders say the move prevented borrowers from pledging debt securities that the firms were committed to supporting themselves because doing so would have posed risks to the central bank if borrowers failed.

The Fed also curbed the use of the CPFF by issuers of asset-backed commercial paper that were already in trouble months before the liquidity effort was launched.

In January 2009, the Fed announced the program wasn't meant for firms "that previously exited the market."

Links, the SIV that issued short-term IOUs through the Fed in October 2008, repaid the central bank when the loans matured and didn't tap the liquidity vehicle again, the Fed's data show.

Bank of Montreal didn't reply to requests for comment.

With a Little Help From the Fed

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See the type and amount of collateral pledged by financial firms that tapped the Fed's overnight-lending facility from March 17, 2008 to May 12, 2009.

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The broker-dealers that made the most use of the Fed's emergency lending from March 17, 2008, to May 12, 2009.

But even after dormant SIVs became ineligible to use Fed's commercial-paper program, it kept providing funding to other complex investment vehicles that in turn lent money to other financial firms that had put loans and other illiquid assets into the vehicles.

According to the data, a vehicle called Crown Point Capital Co. issued about $19.5 billion in commercial paper to the Fed facility between October 2008 and July 2009 to finance assets such as credit-card receivables and commercial mortgage-backed securities.

General Electric's GE Capital finance arm, Barclays PLC and other firms had financing arrangements with Crown Point at the time, though it isn't clear how much, if any, funding individual firms got from the vehicle in return for their assets. Crown Point, in turn, got access to the CPFF in part because it had a high credit rating that was based on ratings of the financial firms supporting the vehicle.

GE Capital was also a direct user of the Fed's commercial-paper funding program, was able to issue short-term debt to the program at lower rates than Crown Point, and didn't use up its capacity under the CPFF.

Fed figures, meanwhile, also show that Lehman Brothers Holdings Inc. got $2.13 billion in overnight funding from the Fed's Primary Dealer Credit Facility in March 2008 after pledging as collateral a $2.23 billion collateralized loan obligation called Freedom, which was created specifically with the PDCF in mind.

The cash was equivalent to 95% of the value of the CLO, backed by risky corporate loans.

Lehman also developed a collateralized loan obligation, known as Spruce and described in company documents as "PDCF-eligible," as well as funding conduits for construction and commercial loans.

Before Lehman tumbled into bankruptcy in September 2008, the company avoided borrowing from the Fed because executives at Lehman were worried about the stigma associated with such borrowing, according to a report from the firm's bankruptcy examiner earlier this year.

Write to Serena Ng at serena.ng@wsj.com and Liz Rappaport at liz.rappaport@wsj.com