Technology Glitch Prompted Biggest 4th Quarter 2010 Discount Window Loan

   By Kristina Peterson, Sarah Portlock and Ian Talley 

WASHINGTON--First Tennessee Bank, a unit of First Horizon National Corporation (FHN), was the biggest borrower of short-term funds from the Federal Reserve during the fourth quarter of 2010, following a technology glitch, according to data released Friday.

Based in Memphis, Tenn., the bank borrowed $1.017 billion on Nov. 24, 2010, the largest single loan during the period and bigger than any other bank's total borrowing.

First Tennessee tapped the central bank's discount window once because of a technology glitch that halted the wire transfer service between the bank and its regional Federal Reserve bank on the day before Thanksgiving in 2010. The technology problem disrupted the ability of the bank's bond broker-dealer to settle securities on the eve of a holiday, said the bank's corporate treasurer, Tommy Adams.

In total, the banks borrowed $3.686 billion from the discount window from October 2010 through December 2010. That included many banks that borrowed money and rolled it over several days in succession. Many loans were for a single day.

Although most of the discount-window borrowers were U.S.-based banks, some of the Fed loans were made to local branches of foreign banks. The New York unit of Spain's second largest bank, Banco Bilbao Vizcaya Argentaria (BBVA), borrowed $200 million in the quarter, making it the third largest discount-window lender in the period. A spokeswoman couldn't immediately comment on the reason for the loans.

The second-largest borrower was Grand Bank, N.A. of Hamilton, N.J., which borrowed $417 million. A spokesman for the bank wasn't immediately available for comment.

Other international banks to tap the discount window included the Bank of East Asia (0023.HK), a Hong Kong-based bank that services mainland China, which borrowed $15 million; the Taiwan Cooperative Bank, which took out a $3 million short-term loan; and the New York unit of one of Germany's largest banks, DZ Bank (DZB.YY), which borrowed $5 million from the Fed.

The Dodd-Frank law requires the Fed to release each quarter the details of borrowing from its discount window, from which banks can obtain short-term loans, typically overnight. The information is published with a two-year lag. The Fed began releasing the data in late September.

Borrowing from the Fed's discount window surged during the financial crisis, when borrowing in a single week from the facility sometimes exceeded $100 billion. Discount window lending declined over the course of 2010 to more normal levels. The central bank had closed the emergency lending programs established during the financial crisis and banks were generally in stronger shape.

The Fed had previously released details of banks' borrowings during the 2008 financial crisis, in response to Freedom of Information Act requests.

The central bank already publishes general information about the size and composition of its balance sheet each week.

   Write to Kristina Peterson at [e-mail]