UPDATE 1-Rep. Paul planning hearing on Fed foreign lending

(Adds Paul could ask Fed to testify)

By Mark Felsenthal

WASHINGTON, April 2 (Reuters) – Persistent Federal Reserve
critic Representative Ron Paul plans to hold a hearing on the
U.S. central bank’s emergency loans to the branches of non-U.S.
banks, and could ask a Fed official to testify, his spokeswoman
said on Saturday.

“I was surprised and deeply disturbed … to learn the
staggering amount of money that went to foreign banks,” Paul
said in a statement.

“These lending activities provided no benefit to American
taxpayers, the American economy, or even directly to American
banks,” the Republican lawmaker said.

Paul chairs the domestic monetary policy subcommittee of
the House of Representatives Financial Services subcommittee.
While the subcommittee would not expect Chairman Ben Bernanke
to respond to a call to testify, Bernanke could be asked to
send a deputy, Paul spokeswoman Rachel Mills said.

“That’s definitely a possibility,” she told Reuters.

Data the Fed was required by courts to disclose on Thursday
showed the U.S. branches of foreign-headquartered financial
firms had made extensive use of the central bank’s emergency
lending discount window during the severe financial crisis that
froze financial markets in the fall of 2008.

During that period, the Fed actively encouraged financial
firms to obtain funding from an array of unusual emergency
funding vehicles to prevent markets from freezing up entirely.

While making emergency loans is at the discretion of the
individual regional Fed banks, the discount window is open to
any firms in sound condition able to post good collateral.

Banks from Europe drew tens of billions of dollars from the
Fed at the height of the crisis through the discount window,
documents showed. Nine of the 12 largest borrowers from the Fed
were foreign-owned firms.

A senior Fed official defended the lending on Friday.

“They’re foreign-owned operations operating in the United
States, working for the American people,” Dallas Fed President
Richard Fisher told reporters after a speech in Dallas. “Our
job is to provide liquidity to keep the American economy
going.”
(Editing by Mohammad Zargham)

UPDATE 1-Rep. Paul planning hearing on Fed foreign lending