Citizens among top borrowers in Federal Reserve loan program

By William Hamilton
PBN Staff Writer

Citizens Financial Group Inc. was one of five banks with a local presence that borrowed billions of dollars from the Federal Reserve’s special loan programs set up in the depths of the financial crisis of 2008 and 2009 to help businesses struggling with the credit crunch, according to Fed data that was kept secret until earlier this month.

RBS Citizens N.A., Citizens Financial’s largest division, tapped the Fed’s Term Auction Facility – one of several credit programs created by the central bank – 29 times between May 2008 and December 2009 for short-term loans totaling $117.15 billion.

The Providence-based company has since paid back the loans with interest.

The borrowing was not a sign of financial weakness but a chance to take advantage of a less-costly source of liquidity at a time when the credit squeeze was on, a Citizens Financial Group spokesman insisted last week.

“It was an alternative, cheaper source of funding … that we in turn would use to lend,” spokesman Michael Jones told Providence Business News.

Jones said RBS Citizens, the holding company for most Citizens and Charter One banks, maintained a capital ratio well above the 10 percent threshold regulators used to classify a bank as well-capitalized through the turmoil in the financial markets. Jones said the bank’s total capital ratio stands at 13.9 percent.

Meanwhile, Bank of America Corp. – the largest U.S. bank – took advantage of the Term Auction Facility, too, borrowing a total of $212.17 billion in 15 transactions between September 2008 and May 2009. Fed documents show that BofA subsidiaries also participated in other special Fed-lending programs, borrowing nearly $680 billion in 2008 and 2009, at a time when the bank also had accepted a $45 billion bailout in the form of the U.S. Treasury’s Troubled Asset Relief Program.