ECB takes place of Fed loans for European banks

* Dexia loans from Fed reduced to zero in January 2010

* Had been one of biggest recipients of Fed emergency loans

* Fed window lending peak in Oct.2008 far below ECB levels

* European lenders still heavily reliant on ECB, less on Fed

By Sarah White and Philip Blenkinsop

LONDON/BRUSSELS, April 1 (Reuters) – European banks heavily
supported by the U.S. Federal Reserve at the height of the
financial crisis have since weaned themselves off these loans,
even as the struggle for funding in Europe gets tougher.

Belgian-French bank Dexia (DEXI.BR: Quote, Profile, Research), revealed as the biggest
user of U.S. central bank funding after Lehman Brothers’
collapse in September 2008, said on Friday it no longer had any
outstanding loans from the Fed.

These were reduced to zero in January 2010, the lender said,
while its reliance on funding from the European Central Bank
(ECB) has dropped to 17 billion euros ($24.06 billion) from a
peak level of about 40 billion euros.

“The Fed’s emergency-lending facility has been used by Dexia
to finance U.S. assets only,” Dexia said in a statement.

Data released this week by the Fed showed European banks to
be the main beneficiaries of loans from its co-called discount
window on Oct. 29, 2008 at the top of the funding crisis, when
borrowing peaked at $111 billion. [ID:nN31261042]

But while the data sheds a rare light on some of the manic
borrowing that went on at one of the most turbulent moments in
financial history, it only provides a partial picture of the
funding sought by European banks at the time.

The European Central Bank has never disclosed bank-by-bank
borrowing data, but commercial banks’ use of the ECB’s open
market operations was almost ten times the U.S. amount on the
day borrowing at the Fed discount window peaked.

At 774 billion euros ($1,096 billion), the numbers suggest
Europe relied far more heavily on its own central bank.

But three years after the peak of the crisis, banks are
still as reliant on the European Central Bank as before, and the
ECB is struggling to satisfy the funding needs of cash-starved
Irish, Portuguese and Greek banks, analysts say.

These banks have started turning to costly facilities from
investment banks as they run out of securities eligible for
repurchase deals with the ECB. Some estimates place their
short-term funding needs at 800 billion euros. [ID:nLDE7300TC]

ALL OVER NOW

Dexia and Depfa, the failed Dublin-based unit of the now
nationalised German group Hypo Real Estate (WHYGgb.F: Quote, Profile, Research), accounted
for nearly half of the Fed borrowing on Oct. 29, 2008.

Fortis, the Dutch-Belgian bank that was broken up during the
height of the crisis, also drew some $7 billion on either side
of a weekend when the Dutch, Belgians and Luxembourg pumped 11.2
billion euros ($15.85 billion) into its operations.

But Fortis Bank, now majority-owned by BNP Paribas (BNPP.PA: Quote, Profile, Research)
and known as BNP Paribas Fortis, has since paid back the money.

Dexia has sold off its loss-making U.S. monoline insurance
business Financial Security Assurance since the crisis, and the
liquidity support its Credit Local subsidiary provided to U.S.
municipal issuers is being run off.

“The Fed discount window borrowing numbers are at really low
levels now, and that’s probably mainly U.S. banks,” said Hank
Calenti, head of bank credit research at Societe Generale.

“Those were exceedingly stressful points in time (in 2008)
and everyone was turning to the lenders of last resort. European
banks could possibly always turn to the Fed in future but they
have the ECB.”

Although U.S. banks such as Wachovia were also shown to be
heavy users of the Fed’s discount window between August 2007 and
March 2010, the country’s top banks mainly turned to other
facilities set up to cope with the crisis.

Citigroup (C.N: Quote, Profile, Research), Morgan Stanley (MS.N: Quote, Profile, Research) and Merrill Lynch,
now part of Bank of America (BAC.N: Quote, Profile, Research) were the three biggest
recipients of the Fed’s $3.3 trillion emergency lending.

European banks also tapped this and a special programme set
up for broker-dealers — with the biggest $47.9 billion loan
from that facility going to Britain’s Barclays (BARC.L: Quote, Profile, Research).

The loan has now been fully repaid. [ID:nLDE6B10P6]
[ID:nLDE6B112I]

($1=.7065 Euro)
(Additional reporting by Paul Carrel in Frankfurt; Editing by
Alexander Smith)

ECB takes place of Fed loans for European banks