Fed lost $5.3bn on Bear Stearns, AIG holdings in Q1

Washinggton, June 11: The Federal Reserve lost $5.25 billion in the first quarter on the securities it acquired with last year’s bailouts of Bear Stearns and insurer American International Group Inc., according to a report issued Wednesday.

The loss on the holdings, which include mortgage-backed securities, reflected a decline in their value as the recession stretched into the first three months of this year. The cumulative loss on the Bear and AIG holdings comes to $16.46 billion since they were taken over last year. Of that total, a loss of $9.18 billion went to the New York Fed.

The Fed is hoping that if it holds onto the securities long enough, they will eventually rise in value once the economy returns to full health again, the housing market heals and the financial and credit crises are past.

The Fed’s new report, which will be issued monthly, comes as lawmakers have demanded more information about the bailouts, and a slew of other programs intended to spur lending and stabilize the banking system. Critics worry the Fed’s actions have put billions of taxpayers’ dollars at risk.

The monthly report provides some details beyond the Fed’s weekly snapshot of loan and debt-buying programs on its balance sheet. Those details include collateral pledged by borrowers, ratings on collateral, and the number of borrowers for some programs.

However, the Fed did not budge on lawmakers’ requests that it identify borrowers for emergency and other loans. Fed Chairman Ben Bernanke has repeatedly argued that doing so would risk a run on a bank or other financial institution, undermining the purpose of the program.

As lender of last resort, the Fed’s programs are intended to bolster the financial system, a key ingredient to lifting the country out of recession.

Democratic Senate Banking Committee Chairman Chris Dodd which has pushed the Fed to be more open, welcomed the new monthly report. Dodd called it “an important step in our ongoing efforts to bring greater transparency to the Fed’s efforts to stabilize the economy.”

But Sen. Bernie Sanders blasted the new report as “completely insufficient,” and said “it is time for the Fed to name names.”

The monthly report showed that the Fed’s commercial paper program reported net income of $2.14 billion in the first quarter. Commercial paper is the crucial short-term debt that companies use to pay everyday expenses. The Fed began buying commercial paper last year when that market virtually came to a halt after credit problems intensified last fall.

It also reported net earnings of $1.2 billion in the first quarter on other loan programs, including emergency borrowing to banks and investment firms. The Fed reported $4.57 billion in earnings under its regular transactions involving Treasury securities.

The report also said that 378 banks are putting up collateral well in excess of the amount of loans being drawn. It said that borrowing banks have put up $965 billion in collateral to back emergency and other Fed loans that averaged $448 billion in daily borrowing as of late May.

As of late May, the report said that trusts affiliated with Sallie Mae, GE Capital Credit, CarMax, Ford Credit, Harley-Davidson Motorcycle, Honda and Nissan were among the issuers of securities participating in a Fed program intended to spark lending to consumers and small businesses. Investors in the Term Asset-Backed Securities Loan Facility, or TALF, get loans from the Fed to buy newly issued securities backed by, among other things, auto and student loans, credit cards and business equipment.