Senator Grills Fed in Letter on Libyan Bank Bailout

A U.S. senator says he wants answers to why the Federal Reserve provided more than $26 billion in credit to an Arab intermediary for the Central Bank of Libya.

Sen. Bernie Sanders , D-Vt., sent a letter to the Federal Reserve that also demands to know why the Libyan-owned bank and two of its branches in New York were exempted from sanctions that the U.S. slapped on other Libyan businesses to isolate Col. Muammar Qaddafi.

"It is incomprehensible to me that while credit-worthy small businesses in Vermont and throughout the country could not receive affordable loans, the Federal Reserve was providing tens of billions of dollars in credit to a bank that is substantially owned by the Central Bank of Libya," Sanders said in a written statement.

A Federal Reserve spokeswoman told FoxNews.com that the central bank has received the letter and will respond. She declined to comment further.

In the letter to Fed Chairman Ben Bernanke and others, Sanders asked why the central bank made at least 46 emergency, low-interest loans to the Arab Banking Corp., in which the Central Bank of Libya owns a 59 percent stake.

Sanders also asked Treasury Secretary Timothy Geithner why the Treasury Department earlier this month let the Libya-controlled bank skirt the economic sanctions against Libya.

Sanders also questioned why the Bahrain-based Arab Banking Corp. is even allowed to operate branches inside the United States.

The Treasury Department responded to a FoxNews.com inquiry by saying that Libyan-owned banks that were incorporated outside of Libya were allowed to continue transactions. The Arab Banking Corp. isn't incorporated in Libya, but U.S. sanctions call for freezing Libya's financial interest in the bank.

The Fed transactions were made public earlier this year as a result of a Sanders provision in the financial regulatory law that forced the U.S. central bank to reveal which financial institutions it bailed out during the financial crisis from 2007 to 2010.