WASHINGTON -- Banks borrowed in record amounts from the Federal Reserve's emergency lending facility over the past week, while investment banks drew loans at a brisk — though slightly lower — pace, fresh proof of the credit problems gripping the country.
The Fed's report released Thursday said commercial banks averaged a record $75 billion in daily borrowing over the past week. That surpassed the old record — a daily average of $44.5 billion — logged in the previous week. On Wednesday alone, $98 billion was drawn, an all-time high.
For the week ending Wednesday, investment firms drew $134 billion. That was down from a record $147.7 billion in the previous week. This category was broadened last week to include any loans that were made to the U.S. and London-based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley and Merrill Lynch.
The Fed report also showed that over the last week $145.9 billion worth of loans were made to money market mutual funds — via banks — to help the funds, which have been under pressure as skittish investors demand withdrawals.
Squeezed banks and investment firms are borrowing from the Fed because they can't get money elsewhere. Skittish investors have cut them off, moving their money into safer Treasury securities. Financial institutions are hoarding whatever cash they have, rather than lend it to each other or customers.
The report also showed that the Fed has loaned $70.3 billion to insurance giant American International Group. In mid-September, the Fed said it would provide the troubled company a two-year, $85 billion loan. On Wednesday the central bank said it would loan the company an additional $37.8 billion.
The report comes as Washington policymakers battle the worst financial crisis since the stock market crash of 1929.
Investment houses in March were given similar, emergency-loan privileges as commercial banks after a run on Bear Stearns pushed what was the nation's fifth-largest investment bank to the brink of bankruptcy.
The identities of commercial banks and investment houses that borrow are not released. Commercial banks and investment companies now pay 1.75% in interest for the loans.
Since the Bear Stearns debacle in March, the Fed has taken a series of radical, unprecedented steps to get lending — the economy's oxygen — flowing more freely again. It has repeatedly tapped its Depression-era authority to be a lender of last resort not only to financial institutions but also to other types of companies.
Critics worry that the Fed's actions could put billions of taxpayers' dollars at risk.
Separately, as part of efforts to relieve credit strains, the Fed auctioned $37.5 billion in super-safe Treasury securities to investment companies Thursday. Bids were placed for $62.78 billion worth of the securities.
In exchange for the 28-day loans of Treasury securities, bidding companies can put up as collateral more risky investments. These include certain mortgage-backed securities and bonds secured by federally guaranteed student loans.
All the Fed's extraordinary efforts, however, haven't been able to halt the crisis or prevent a seismic shake-up on Wall Street. In recent weeks, Lehman Brothers, the country's fourth-largest investment bank, filed for bankruptcy protection. A weakened Merrill Lynch, deciding it couldn't go it alone anymore, found help in the arms of Bank of America. AIG was thrown a financial lifeline. And, the last two investment houses — Goldman Sachs and Morgan Stanley — decided to convert themselves into commercial banks to better weather the financial storms.
Meanwhile, 13 banks have failed this year, compared with three last year.
Stocks have tumbled, too. The Dow suffered a triple-digit loss for the sixth day in a row Thursday, a first, and the average dropped for the seventh day in a row. The index lost 679 points to close below 9,000 for the first time in over five years.