Billionaire Beal’s Bank Scored Record Year After Tapping the Fed
Tracy Alloway and Georgia Hall
5 min read
(Bloomberg) -- The Federal Reserve’s discount window has been so synonymous with trouble that the central bank has taken steps to reduce the stigma of banks tapping it. But just before the latest banking crisis, the window’s biggest borrower was a small Las Vegas bank, fueling its best year ever.
Beal Bank USA — part of the financial empire of Andy Beal, a billionaire supporter of President Donald Trump — tapped the Fed for billions of dollars in emergency financing in late 2022, just before the regional-banking crisis that took out lenders including Silicon Valley Bank and First Republic Bank.
Newly released Fed data show that Las Vegas-based Beal Bank USA had borrowed as much as $4.7 billion from the discount window, as the central bank’s emergency lending facility is known, as of Dec. 7, 2022, the latest date for which figures are available. Tapping the discount window is initially anonymous, but the Fed publishes the names of borrowers following a two-year lag.
The data provide fresh insight into the unfolding of the 2023 regional-banking crisis, which culminated in the collapse of banks including SVB and Signature Bank, and spurred Silvergate Capital Corp. to close its doors. Silvergate, which provided services for the crypto market, began tapping the discount window in November 2022, the data show, with loans topping out at $4.5 billion as of Nov. 18 of that year.
Four months later the La Jolla, California-based bank announced it was winding down operations.
Closely held Beal Bank USA was on a very different trajectory. It ramped up borrowing from the Fed in the second half of 2022, a year in which it embarked on a large wager tied to inflation and rising interest rates. The bank, which started the year with just over $5 billion in assets, cut its loans by roughly 20% over the course of 2022 while it piled $18 billion into Treasury securities.
The lender’s net income more than doubled to $1.2 billion in 2022, generating a return on equity — a key measure of a bank’s profitability — north of 40%. That’s triple what any of the 10 largest US banks — giants such as JPMorgan Chase & Co. — produced that year.
It’s unclear exactly how Beal Bank USA used the money from the Fed. However, the timing of the maneuver suggests the company might have borrowed from the government in order to lend to the government. Yields on short-term and long-term Treasuries surged past 4% in the second half of 2022. Meanwhile, Beal Bank USA secured discount window loans at rates of 2.5% to 3.25% that September and October.
A spokesperson for Beal Bank USA declined to comment. Representatives for the Federal Reserve Bank of Dallas and the San Francisco Fed — the district in which Beal Bank USA operates — declined to comment.
The discount window is just one of a constellation of borrowing facilities available to lenders in the US. They range from the Fed’s overnight reverse repo program to the Federal Home Loan Banks, or FHLBs, which supply funds to a range of financial institutions.
Beal Bank USA and Beal Financial Corp., Beal’s Texas-based bank holding company, also tapped the FHLBs for a collective $4.4 billion in 2022, Bloomberg News reported in 2023. That facility is supposed to ease banks’ mortgage lending, but the Federal Home Loan Bank of Dallas said in a 2022 filing that “some of the Bank’s larger members also used advances to fund investment activities.”
Beal himself, an avid poker player with a fondness for complicated mathematical theory, is known for making bold bets on investments, famously scooping up energy bonds during the California power crisis in 2001 and buying debt backed by commercial aircraft following the Sept. 11 terrorist attacks.
In recent years, Beal has become an avid supporter of Trump, donating millions to support his 2016 and 2024 campaigns.
The data on Beal Bank USA’s Fed borrowing could add to scrutiny of banks’ use of emergency lending facilities. The discount window allows banks to borrow against high-quality collateral at above-market rates. The costlier rate means it’s typically used as a last resort — and many banks are still reluctant to tap the facility even after efforts by regulators to remove the stigma associated with its use.
Borrowing at the discount window began creeping up in late 2022, however, raising eyebrows at a time when the amount of liquidity in the financial system was considered relatively high and banks overall showed few signs of funding strains.
Banking experts suggest that the difference between benchmark borrowing rates and the discount window rate had shrunk in late 2022, meaning that the financing was more attractive to smaller institutions which typically pay a higher premium than larger banks for funding.
“When you look at the gamut of smaller institutions, there’s a lot of them where that’s not such an unattractive rate,” Bill Nelson, chief economist at the Bank Policy Institute and a former Fed employee who helped design and manage the discount window for a decade, told the Odd Lots podcast in early 2023. “Maybe they lost a municipal deposit and need funding for a little while.”
The jump in discount-window borrowing in late 2022 helped spark a wave of speculation about the health of banks, culminating in a run on deposits a few months later.
Since then, some regulators have been urging for a requirement that banks regularly tap the discount window, both to practice using the facility and to further reduce stigma around its use during times of crisis.
“The discount window keeps the banks alive,” said Anat Admati, a finance and economics professor at the Stanford Graduate School of Business. “It is not meant to be where they fund everything.”
