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Federal Reserve Under Fire for Lending Big to Foreign Banks During Financial Crisis

As President Obama's deficit commission nears a vote on a plan to slash U.S. government spending, the Federal Reserve is under fire after it revealed it gave a big chunk of its multi-trillion dollar Wall Street bailout to companies not based on Wall Street -- or even in the United States. 

The disclosures, released Wednesday, come as Federal Reserve Chairman Ben Bernanke defends the central bank's plan to drop another $600 billion into Treasury securities to spur the lending by financial institutions.

While the Federal Reserve helped companies that had never before received Fed assistance, including several U.S. firms that are not financial institutions, the central bank lent billions to foreign banks that operate in the U.S., including Germany's Deutsche Bank Securities, which got $290 billion in mortgage securities; London-based Barclay's, which received a $47.9 billion loan; France's BNP Paribas Securities, Switzerland's UBS Securities LLC and Daiwa Securities America, a subsidiary of one of Japan's largest brokerage houses.

Sen. Bernie Sanders, I-Vt., called the disclosure "jaw dropping." The Federal Reserve was forced to disclose the information under a provision authored by Sanders in the new financial regulatory law.

"We now know that the Fed loaned trillions of dollars at zero or near-zero interest rates not only to the largest financial institutions in the country, but also to many of our largest corporations -- including GE, McDonalds and Verizon," Sanders said in a statement released after the disclosure.

"Perhaps most surprising is the huge sum that went to bail out foreign private banks and corporations, including two European megabanks -- Deutsche Bank and Credit Suisse," he said. "As a result of this disclosure, other members of Congress and I will be taking a very extensive look at all aspects of how the Federal Reserve functions."

Among the questions Sanders said must be asked: Has the Federal Reserve of the United States become the central bank of the world?

The revelation was the latest development in the emerging battle over the central bank's long-standing "dual mandate," which requires it to give equal weight to fighting inflation and creating jobs when it sets interest rate and other monetary policy.

James Bullard, president of the Federal Reserve of St. Louis, told Fox Business Network on Wednesday that "it would be OK with me" if Congress approved new legislation proposed by Republicans to eliminate the dual mandate.

Bullard seemed to break ranks with the Fed's board of governors in Washington, which supports maintaining the existing directive.

"The only thing the Fed can do in the long run is control the inflation rate," Bullard told FBN. "And even though we have a dual mandate, we say that our best contribution to the dual mandate is to provide a stable price backdrop for the economy. Then that gives businesses and households a good platform from which they can make all of their decisions -- let markets work. And then you get the best allocation of resources that you can."

Republican critics say the dual mandate is pushing the Fed to embrace potentially harmful stimulus measures to jumpstart job creation – specifically, a new round of so-called "quantitative easing." Critics worry the Fed's moves will lay the foundation for higher inflation, a weaker dollar and global economic instability.

The Fed approved more quantitative easing last month, announcing a plan to purchase up to $600 billion more in Treasury securities to help push interest rates lower on mortgages, auto loans and business loans so as to encourage borrowing. In its announcement, the Fed said economic growth has been "disappointingly slow," which has helped to keep the unemployment rate "elevated."

But Rep. Mike Pence, R-Ind., has introduced legislation to limit such Fed moves. His bill would require the Fed to focus "exclusively" on "price stability" -- inflation -- "and protecting the dollar." Sen. Bob Corker, R-Tenn., has introduced a similar measure in the Senate.

Supporters of the dual mandate say it has worked to balance Fed actions. On Wednesday, Bernanke told business leaders in Ohio that job creation is "probably the most important economic issue facing America today."

"At the pace of growth we're seeing, we're not growing fast enough to materially reduce the unemployment rate."