UPDATE 1-First Tennessee, BBVA unit took big Fed loans in late 2010

Fri Dec 28, 2012 4:45pm EST

By Ben Berkowitz and Pedro da Costa

WASHINGTON Dec 28 (Reuters) - First Tennessee Bank and a U.S. affiliate of Spanish bank BBVA were among the largest borrowers from the Federal Reserve's emergency lending program in late 2010, according to data released on Friday.

By far the largest loan in the quarter was the roughly $1.02 billion that First Horizon unit First Tennessee borrowed on Nov. 24, 2010 for a two-day term. That one loan represented about 29 percent of all primary credit lending from the discount window for the quarter.

Company officials said they took the loan because of a technical problem relating to wire transfers between the bank and the Federal Reserve Bank of St. Louis.

Because it was the eve of the Thanksgiving holiday, and the wire transfer glitches were taking too long to repair, First Tennessee agreed to take the loan as a stopgap until the holiday ended and the problems were fixed.

The BBVA unit borrowed $200 million in two transactions. A representative of the parent company in Spain said the transactions were a routine test of the discount window mechanism by its U.S. wholesale unit and said it conducts similar operations every year.

The Fed began releasing the data earlier this year, albeit with a two-year lag, under the terms of the Dodd-Frank financial reform law. The central bank had lobbied to keep such lending figures private for fear it could create a stigma for emergency loans in the future.

This type of Fed lending was aimed at maintaining day to day liquidity in the banking system, a staple of crisis central banking. In contrast, the goal of the controversial Troubled Asset Relief Program or TARP was to actively recapitalize struggling institutions.

One small but frequent borrower during the final quarter of 2010 was First National Bank of Jeffersonville, New York. A spokesperson could did not return a request for comment.

Another active participant in the Fed's lending program was Grand Bank of Hamilton, New Jersey. Linda Niro, a representative of the bank, said the funds helped a subsidiary lender in Irvine, California continue making mortgage loans.

Some 456 separate financial institutions took loans of one kind or another during the quarter.

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