NAB and Westpac’s Secret Bailout Revealed

Here’s a clue for Mr. Johnston, it wasn’t Westpac’s US office that needed the dosh, it was Westpac in Australia that needed it. It shows you that without the direct financial support of the US Federal Reserve Westpac and NAB would have been toast.

Westpac and NAB needed the loans because they were on the verge of going belly up. It’s that simple. If they hadn’t gotten secret loans from the US Fed they would undoubtedly have needed secret loans from the RBA.

Fortunately for the RBA, the Fed opened the door and this allowed Aussie central bankers and bankers to claim that the Aussie banks hadn’t received a bailout.

But not only that, what’s most extraordinary is that Westpac was one of the first institutions to borrow money from the Fed when the lending facility became available!

But more about that in a moment. Let me give you some of the background first …

You may have read about something called the Dodd-Frank Act. The full name is the Wall Street Reform and Consumer Protection Act. It’s called Dodd-Frank after the bill’s sponsors, US Senator Chris Dodd, and Representative Barney Frank.

The legislation mandates a number of things, but part of it is the requirement for the US Federal Reserve to reveal which institutions it loaned money to under the various bail out programmes.

One of those programmes was titled the Term Auction Facility (TAF). According to the Fed’s website:

“Under the program, the Federal Reserve auctioned 28-day loans, and, beginning in August 2008, 84-day loans, to depository institutions in generally sound financial condition…

“… Of those institutions, primary credit, and thus also the TAF, is available only to institutions that are financially sound.”

OK, so only “financially sound” institutions were eligible for TAF loans. That would be financially sound institutions such as LloydsTSB plc which got a USD$10.5 billion loan from the Fed and which later had to be partially nationalised by the UK government.