Letter to Chairman Ben Bernake, Secretary of the Treasury Timothy Geithner and Acting Comptroller of the Currentcy John Wlash

Letter

Sen. Bernie Sanders (I-Vt.) today questioned why the Federal Reserve provided more than $26 billion in credit to an Arab intermediary for the Central Bank of Libya.

The total includes at least $3.2 billion in loans that the Fed was forced to make public today in addition to earlier revelations under a Sanders provision in the Wall Street reform law.

Sanders also asked why the Libyan-owned bank and two of its branches in New York, N.Y., were exempted from sanctions that the United States this month slapped on other Libyan businesses to pressure Col. Moammar Gadhafi's government.

"It is incomprehensible to me that while creditworthy small businesses in Vermont and throughout the country could not receive affordable loans, the Federal Reserve was providing tens of billions of dollars in credit to a bank that is substantially owned by the Central Bank of Libya," Sanders said.

In a letter to Federal Reserve Chairman Ben Bernanke and others, Sanders asked why the central bank made at least 46 emergency, low-interest loans to the Arab Banking Corp., in which the Central Bank of Libya owns a 59 percent stake.

In the same letter, Sanders asked Treasury Secretary Timothy Geithner why the Treasury Department on March 4 let the Libya-controlled bank skirt the economic sanctions against Libya.

The senator also questioned why the Bahrain-based Arab Banking Corp. is even allowed to operate branches inside United States. "Why would the U.S. government allow a bank that is predominantly owned by the Central Bank of Libya -- an institution on which the U.S. has imposed strict economic sanctions --to operate two banking branches within our own borders?" Sanders asked.

The Fed transactions were made public earlier this year as a result of a Sanders provision in the Wall Street reform law that forced the U.S. central bank to reveal which financial institutions it bailed out during the financial crisis from 2007 to 2010.

In another dubious twist, the Fed loans, at interest rates as low as 0.25 percent, relied on U.S. Treasury securities as collateral. In other words, at the same time that the Arab Banking Corp. was borrowing money at almost zero interest from one arm of the government, the Fed, it was lending money at a higher interest rate to another arm of the U.S. government, the Treasury Department.

The full text of the letter is as follows:

The Honorable Ben S. Bernanke
Chairman
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, N. W.
Washington, DC 20551

The Honorable Timothy Geithner
Secretary of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20219

John Walsh
Acting Comptroller of the Currency
Administrator of National Banks
Washington, DC 20219

Dear Chairman Bernanke, Secretary Geithner, and Mr. Walsh:

I am writing to express my serious concerns about the Arab Banking Corporation--a bank that is over 59 percent owned by the Central Bank of Libya--which has received over $26 billion in near zero interest rate loans from the Federal Reserve and currently has two branches located in New York CIty.

As a result of a provision I authored in the Wall Street Reform and Consumer Protection Act, we learned that from December 20, 2007 though March 11, 2010, the Federal Reserve provided over 45 emergency loans to the Arab Banking Corporation with an interest rate as low as 0.25%. All of these loans were backed by collateral in U.S. Treasury Securities purchased by the Arab Banking Corporation. In other words, at the same time that the Arab Banking Corporation was borrowing money from one arm of the U.S. government at near zero interest rates, it was also lending money to the U.S. Treasury and receiving a higher interest rate.

It is incomprehensible to me that while credit worthy small businesses in Vermont and throughout the country could not receive affordable loans, the Federal Reserve was providing tens of billions of dollars in credit to a bank that is substantially owned by the Central Bank of Libya. To make matters worse, our assistance to this Libyan-controlled bank did not end there.

On March 4, 2011, the Treasury Department exempted from economic sanctions the Arab Banking Corporation and any other bank that is owned or controlled by the Libyan government operating under the laws of a different country. Since the 59-percent Libyan-owned Arab Banking Corporation is headquartered in and operates under the laws of Bahrain, it is today escaping the economic sanctions imposed to hobble Muammar Gaddafi's regime. This raises a number of critical questions:

-Why would the U.S. government exempt the Arab Banking Corporation from economic sanctions when it is primarily owned by the Central Bank of Libya?
-How many U.S. Treasury Securities does the Arab Banking Corporation currently own?
-How much money has the Federal Reserve lent to the Arab Banking Corporation since December 1, 2010?

More broadly:

-Is it in the United State's interest to be borrowing and lending money from a bank that is predominantly owned by the Central Bank of Libya?
-How many U.S. Treasury Securities did the Arab Banking Corporation purchase when it was borrowing money from the Federal Reserve's various emergency lending facilities?

Finally, Chairman Bernacke, when I asked you why the Federal Reserve extended these emergency loans to the Arab Banking Corporation last December, you responded that the Federal Reserve provides lending to the U.S.branches and agencies of foreign banks on the same terms that it provides to U.S. depository institutions. The Arab Banking Corporation has a U.S. branch and a Grand Canyon branch both located in New York City. This raises another disturbing question:

-Why would the U.S. government allow a bank that is predominantly owned by the Central Bank of Libya--an institution which the U.S. has imposed strict economic sanctions--to operate two banking branches within our own borders?

I trust you will agree with me that the American people deserve answers to these questions. Thank you in advance for your attention to this important issue.

Sincerely,
Bernard Sanders
United States Senator

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