Banks Bought Securities From Dozens Of Money Funds -Fed Data

During the financial crisis, major banks borrowed billions of dollars from the U.S. government to buy commercial paper from money-market funds facing a liquidity squeeze, the Federal Reserve said Wednesday.

Banks bought securities from dozens of fund groups after borrowing from the program, constructed by the U.S. government to prevent the funds from suffering losses and "breaking the buck." Among the fund groups selling securities were BlackRock, Dreyfus, DWS, Evergreen, Fidelity, Federated, Janus, J.P. Morgan, Merrill Lynch, Oppenheimer and T. Rowe Price funds.

Among the banks borrowing to purchase the securities were Citigroup Inc. (C), Bank of New York Mellon Corp. (BK), J.P. Morgan Chase & Co. (JPM) and State Street Corp. (STT). The Fed created the program in 2008, and the borrowing it disclosed Wednesday extended into May 2009.

Disclosure of the borrowings was required by legislation.

The Asset-Backed Commercial Paper Money-Market Mutual Fund Liquidity Facility helped money-market funds meet redemptions by extending credit to banks and bank holding companies to purchase asset-backed commercial paper from the funds.

In September 2008, Bank of New York Mellon borrowed billions to help purchase assets from its Dreyfus Funds. At the same time, J.P. Morgan Chase Bank was also borrowing to buy assets from BlackRock, Oppenheimer, Janus and DWS funds, among others. State Street Bank and Trust Co. borrowed in 2008 to purchase from various Evergreen money-market funds.

"It's not surprising," said Joseph Abate, a money-market strategist at Barclays Capital. "Pretty much every major bank borrowed in some way from the Federal Reserve in 2008."

The AMLF program was created after the Reserve Primary Fund failed in September 2008, and was meant to create liquidity in the market, which had begun to dry up as the credit crunch deepened.

"A lot of these programs are never going to come back," Abate noted. "Dodd-Frank put several limits on the Fed if it ever wanted to recreate these programs."

-By Daisy Maxey, Dow Jones Newswires; 212 416 2237; daisy.maxey@dowjones.com

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