Banks trim borrowing from emergency Fed program

WASHINGTON -- Banks reduced their borrowing from a Federal Reserve emergency lending program for the third straight week, a sign the institutions are having an easier time getting credit from private markets.

The Fed said Thursday that commercial banks averaged $30 billion in daily borrowing over the week that ended Wednesday. That's down from $30.7 billion in the week ended Aug. 19.

Squeezed banks borrow from the Fed when they have trouble getting the money elsewhere. At the height of the financial crisis last fall, investors cut banks off and shifted money into safer Treasury securities. Financial institutions hoarded much of their cash, rather than lending it to each other or customers. That lockup in lending worsened the current recession, the deepest since World War II.

The identities of the financial institutions that receive the emergency loans are not released. They pay just 0.50% in interest for the emergency loans.

Many lawmakers and nonprofit groups have criticized the Fed for not identifying the banks that benefit from its cheap loans. But Fed Chairman Ben Bernanke has argued that doing so could cause a run on the institutions and would undermine the purpose of the programs, which is to bolster financial stability.

The central bank did ramp up its activity in other areas. It increased its holdings of mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae to $624.3 billion, from $607 billion the previous week. The goal of the purchases, which began Jan. 5, is to drive down mortgage rates.

The Fed has pledged to purchase up to $1.25 trillion of the securities, along with $200 billion of debt issued by Fannie and Freddie.

Mortgage rates edged up this week. Rates on 30-year home loans averaged 5.14%, up from 5.12% last week, Freddie Mac reported Thursday. That's above a record low of 4.78% in the spring.