Charlotte-based Wachovia was losing an average of $1 billion in deposits a day in the weeks leading up to its emergency sale to Citigroup and only had cash on hand to survive a few more days, a Fed official says in newly released meeting transcripts from 2008.
The transcripts shed light on the discussions Fed officials had about Wachovia and the financial crisis in real time, but provide few new revelations about the bank’s plight. Fed officials and lawsuits have previously disclosed Wachovia’s cash woes in September 2008.
“They have liquidity to last under a calm scenario this week only until maybe Thursday or Friday,” Richmond Federal Reserve President Jeffrey Lacker says in the transcript from a conference call on Monday Sept. 29, 2008.
That morning, the Federal Deposit Insurance Corp. had announced that Citigroup planned to buy most of Wachovia’s assets in a government-assisted transaction reached through frenzied negotiations over the weekend. Wells Fargo would swoop in to buy Wachovia days later with a higher bid.
The pressure on Wachovia had mounted on the previous Friday after Washington Mutual, a major mortgage lender, had failed, Lacker said. The bank probably would have had to turn to the Fed as a lender of last resort had it not reached the deal with Citi, he said.
The transcripts, which are released every year on a delay, provide new details from 14 meetings of the Federal Open Market Committee during a critical year for the banking system and the economy.
In the Sept. 29 meeting, Richard Fisher, the president of the Dallas Fed, foreshadows the future debate over government bailouts of banks deemed “too big to fail.”
Then-Federal Reserve Board Chairman Ben Bernanke, who was raised in Dillon, said he shared his concerns.
“We have been very constrained throughout this entire crisis, as you know, by the existing facilities for dealing with failing institutions and mergers being one of the only tools we have,” Bernanke said. “I think it’s very important…to develop good resolution mechanisms and to think about the issues of concentration and too big to fail.”