The bank, then 29 percent-owned by the Libyan state, had aggregate borrowings in that period of $35 billion — while the largest single loan amount outstanding was $1.2 billion in July 2009, according to Fed data released yesterday. In October 2008, when lending to financial institutions by the central bank’s so-called discount window peaked at $111 billion, Arab Banking took repeated loans totaling more than $2 billion.

Fed officials say all the discount window loans made during the worst financial crisis since the 1930s have been repaid with interest.

The U.S. government has since frozen assets linked to the regime of Libyan ruler Moammar Gadhafi and engaged in air strikes against his military forces, which are battling a rebel uprising in the North African country. Arab Banking got an exemption that allows the firm to continue operating while barring it from engaging in any transactions with the Libyan government, according to the U.S. Treasury Department.

“It is incomprehensible to me that while creditworthy 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,” Senator Bernard Sanders of Vermont, an independent who caucuses with Democrats, wrote in a letter to Fed and U.S. officials.

Bernanke, Geithner

The letter was addressed to Fed Chairman Ben S. Bernanke, Treasury Secretary Timothy F. Geithner and John Walsh, acting comptroller of the currency. The figure refers to the aggregate amount of loans the bank received under U.S. lending programs. Arab Banking owed about $4 billion to the Fed under other bailout programs in the fall of 2009, data released in December show.

Jack Gutt, a spokesman for the Federal Reserve Bank of New York, declined to comment.

Arab Banking said Dec. 2 that Libya’s stake in the Manama, Bahrain-based lender had increased to 59 percent.

“There was an uneasy detente between the United States and Libya” when the loans were made, said William Poole, senior economic adviser to Merk Investments LLC and a former president of the Federal Reserve Bank of St. Louis. “It would not happen in the morning.”

Park Avenue Branch

David Siegel, treasurer of Arab Banking’s branch on Park Avenue in midtown Manhattan, declined to comment. The New York branch deals mainly in trade finance, according to its website. The bank’s chairman is Mohammed Hussain Layas, chief executive officer of the Libyan Investment Authority. The CEO is Bahrain-based Hassan Ali Juma.

Arab Banking reported a loss of $880 million in 2008 as it took a $1.1 billion charge tied to structured investment vehicles and derivative products known as collateralized debt obligations. Arab Banking recovered during the next two years, posting profits totaling $265 million.

Libya previously shared the bank with the Abu Dhabi Investment Authority and the Kuwait Investment Authority, both sovereign investment funds. The Libyan Central Bank bought out the Abu Dhabi stake in 2010 and took majority control, which prompted Fitch Ratings in December to downgrade Arab Banking’s credit rating.

In March, after the U.S. froze Libya’s assets, Fitch downgraded the bank’s credit rating again, this time to “junk” status. Contracts to protect Arab Banking’s debt, which typically rise as investor confidence deteriorates, increased by 186 basis points to 500 during March. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

Uncertain Outcome

“Nobody knows how the situation in Libya is going to work out finally and who will ultimately be in charge and obviously who will be running institutions like the central bank,” Philip Smith, a London-based Fitch analyst, said in a phone interview.

Under the asset freeze, the bank has been prevented from conducting transactions with the Gadhafi regime and can thus continue trading with other customers as usual, Smith said.

The bank listed deposits of $17.5 billion at the end of 2010. According to a report from the Fitch Ratings firm, the Libyan Central Bank places “sizeable deposits” with the lender. Marti Adams, a spokeswoman for the Department of Treasury, declined to comment on whether any of the bank’s deposits are subject to the asset freeze.

“It is today escaping the economic sanctions imposed to hobble Moammar Gadhafi’s brutal regime,” Sanders said in his letter. “Why would the U.S. government exempt the Arab Banking Corporation from economic sanctions when it is primarily owned by the Central Bank of Libya?”