Federal Reserve aided all types of California banks during financial crisis
The Federal Reserve made an emergency $650-million loan to Countrywide Financial Corp. on April 4, 2008, to help what was then the No. 1 home lender from running out of operating cash.
The Calabasas-based high-risk mortgage specialist, which wound up being taken over by Bank of America Corp., was far from the only California company to receive such help. That same Friday, for example, the Fed lent $200,000 to Pan American Bank, a tiny East Los Angeles bank whose mortgages for the Latino community had been made to more traditional standards.
And California stalwarts Union Bank of California, Bank of the West and City National Bank all lined up repeatedly for assistance during the financial crisis.
Big and small, the Fed helped them all — or nearly all — during the crisis in 2008 and 2009, according to thousands of documents released Thursday after the Supreme Court ruled they could not be kept secret.
The disclosures included the names of banks that borrowed from the Fed’s discount window, a short-term lender of last resort for banks. Banks had traditionally regarded borrowing from the Fed as a badge of dishonor, a sign of weakness.
But all that went by the wayside during the crisis, especially after the September 2008 failure of Lehman Bros. caused banks’ traditional source of short-term credit — loans from other financial firms — to evaporate in an atmosphere poisoned with fear and distrust.
The L.A. area’s City National Bank, for example, had ample deposits throughout the crisis but still found itself turning to the Fed at times for short-term cash. The bank said it “used the discount window infrequently … when it provided a cost-effective alternative to other sources of overnight funding.”
City National received at least a dozen loans ranging in size from $2 million to $211 million, a survey of the Fed data showed. The area’s many Asian American banks also were borrowers, including Pasadena’s East West Bank.
The Fed also made many loans to foreign banks operating branches or subsidiaries in California. Bank of the West, a unit of France’s BNP Paribas, was a recipient of aid from the Fed, as was Rabobank America, a farm-lending unit of a big Dutch bank, which got at least one small loan from America’s central bank.
Although no California banks approached the trillions of dollars showered on Wall Street firms at the height of the crisis, there were good-sized numbers for the state’s regional banks as well. On June 30, 2008, Bank of the West borrowed $410 million from the Fed, while Union Bank of California, a subsidiary of the Bank of Tokyo-Mitsubishi, received $650 million.
Many failed banks were big borrowers, including California National in L.A., Pacific National in San Francisco and La Jolla Bank in San Diego.
One major name was missing from the list: Wells Fargo Bank of San Francisco, by far California’s largest bank. Wells Fargo spokeswoman Jennifer Langan declined to comment, but analyst Joe Morford of RBC Capital markets took note.
What does it all mean? “It’s hard to really say without looking into it all more,” Morford said in an email. “What could be more interesting is that Wells didn’t use it at all.”
